A dairy love affair

Thanks to rapid urbanisation and rising incomes, Southeast Asia is consuming dairy products at one of the fastest-growing rates in the world

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November 16, 2016
A dairy love affair
The white stuff: a dairy farmer carries a container of fresh milk through a barn at Pujon district in East Java, Indonesia

Milk is the drink of the gods,” read a US advertisement featuring the provocative basketball player Dennis Rodman in 1996. “Staying active, eating right, and drinking 3 glasses a day of lowfat or fat free milk helps you look great,” proclaimed superstar footballer David Beckham in a similar ad ten years later.

The adverts, part of the ‘Got Milk?’ campaign that saw famous faces don milk moustaches alongside panegyrics on milk’s health benefits, are typical of industry marketing efforts in the West, where dairy has come to be widely seen as an important part of a nutritious, balanced diet.

In Southeast Asia, where diets have typically not included dairy, drinking milk has taken longer to catch on among the general populace – although not for a lack of effort on the part of dairy companies.

In 1915, the French brand La Petite Fermière ran a quarter-page advert in Luc Tinh Tan Van, a now-defunct Vietnamese newspaper, in which a woman remarked how healthy and plump another woman’s son looked. The mother replied that her son consumed La Petite Fermière condensed milk every day.

“Advertisements also suggested to colonial, Asian audiences that dairy products would help in making consumers – and their countries by extension – stronger, fitter and more ‘modern’,” said Erich deWald, a history lecturer at the University of Suffolk, adding that similar messages continue today. “The general twentieth-century cultural coding of Western things as desirable and modern things meant that everyday consumer commodities such as dairy milk saw a rise in real and symbolic value. Consuming milk could make one better, even whiter.”

Dear dairy

Maurits Klavert, president director of PT Frisian Flag, a dairy company that has been operating in Indonesia since 1922, said his company’s marketing efforts have long centred on health claims. “We have been consistently educating consumers, especially children, about nutrition, the goodness of milk and [the importance of] healthy, active lifestyles. As far as advertising is concerned, we have been consistently building our campaign around the positioning of ‘building stronger families’,” Klavert said.

Compared to dairy-hungry markets, consumption of dairy remains low in Southeast Asia. The region consumes less than 20kg of dairy per capita each year, compared with 300kg per capita per year in developed markets such as Australia. But according to data provided by global food and agribusiness research organisation Rabobank, dairy consumption in Southeast Asia is expected to grow by 3% every year until 2020, making the region one of the largest consumers of dairy products globally.

Michael Harvey, senior farm and dairy analyst for Rabobank, told Southeast Asia Globe that growing regional awareness of the health benefits of dairy products, combined with rising incomes and rapid urbanisation, had caused dairy consumption to grow at rates well above the world average of 2%.

The Indonesian and Vietnamese markets are expected to grow the fastest, at 3.9% and 4.5% a year respectively. “It’s because of the structure of their population – they’ve got good population growth and quite young populations and their per capita dairy consumption is coming from a lower base as well, so there’s more headroom for growth, compared to more mature markets, such as Malaysia and Singapore,” he said.

The region has led the world in GDP growth per capita since the 1970s and, as a result, 67 million households in Asean are now part of the ‘consuming class’ – defined as households with more than $7,500 in annual income – with global management consultancy firm McKinsey predicting that this number will almost double to 125 million by 2025.

And, according to Harvey, “as incomes increase, consumers purchase higher-value protein products [such as] dairy”.

Milking it

While acknowledging that rising incomes and rapid urbanisation were major drivers of Southeast Asia’s growing demand for dairy, Vinod Ahuja, livestock policy officer at the UN’s Food and Agriculture Organisation (FAO), emphasised that “specific public policy measures taken by governments to promote dairy consumption” had also played a role in boosting demand.

“The Philippines have been trying to promote school milk consumption, Thailand has run a school milk programme for a long time, and Vietnam has tried to make available previously unavailable packaging materials for public-private ventures,” Ahuja said.

Thailand launched its first national school milk programme in 1992, and today its dairy industry is one of the most advanced in the region. According to the FAO, by providing an outlet for locally produced milk and by creating future consumers of dairy, the school milk programme helped per capita milk consumption in the country rise from 2 litres a year in 1984 to 23 litres a year in 2002. The FAO also credits it with helping child malnutrition drop from 18% in 1992 to under 5% in 2006.

The increasing presence of Western fast food and coffee chains, such as Starbucks and McDonald’s, has also served as a driver of regional demand for dairy, as these chains use large amounts of fresh milk and cheese. Howard Dick, honorary professorial fellow in the University of Melbourne’s Faculty of Business and Economics, said the introduction of air-conditioned shopping malls to Southeast Asia has helped these Western brands become established in the regional economy. 

“Something like air conditioning sounds so obvious and simple, but that is one of the drivers. People go to the malls because they’re cool and comfortable,” said Dick. That rent prices are so high in these modern meccas of conspicuous consumption means “multinational franchisees that require large amounts of dairy are in the box seat to get space”. As a result, their public exposure is enhanced, helping to boost secondary dairy consumption.

Lactose intolerance

According to Harvey, the breakneck speed of Southeast Asia’s growth in demand for dairy is outstripping local supply and, as a result, the region is heavily dependent on global dairy exporters.

“Most markets in Southeast Asia are what we call milk-deficit markets… and [while] there are certainly efforts to increase local milk supply, we think that the deficit is actually widening, because it is so challenging to produce the milk in the region due to the tropical climate,” he said.

Rabobank calculates that most Southeast Asian self-sufficiency rates – the proportion of dairy consumed locally that is also produced locally – will drop by 1% to 2% over the next six years. Thailand has the most autonomous dairy market in the region, with 45% of dairy consumed in the country also produced there, while the Philippines remains most reliant on imports, with just 1% produced locally.

In Vietnam and Indonesia, local production meets the needs of 20% of local demand, but it is estimated that all other Southeast Asian nations produce a mere 3% of the dairy consumed within their borders.

In addition to unfavourable climactic conditions, there is also a dearth of managers capable of running a dairy farm and limited availability of start-up capital. “First and foremost, there’s always been a high level of capital required to build new farms – to buy land and equipment – that’s a challenge, and that’s not unique to Southeast Asia. Your next step is [obtaining] access to good-quality feed and good quality managers that can actually run a dairy farm, because it’s a very complex business,” Harvey said.

Dairy exporters in Europe, New Zealand and Australia operate in temperate climates, have access to high-quality feed, and have a long history of dairying to draw upon, meaning they command a competitive advantage. Consequently, importing from these regions is more cost-effective for Southeast Asia, particularly in recent years: a global glut in milk supply, partly caused by a reduction in demand from China and Russia, has led to low global milk prices.

A question of quality

But considering that the growth of the dairy industry is underpinned by its health claims, “milk quality is another big challenge, [and] in a number of countries we still have a long way to go with milk quality,” according to Ahuja.

This is a major issue, Dick said. “In Southeast Asia, they don’t trust the Chinese local suppliers because, of course, there have been a lot of infant deaths from contaminated product. So they like to buy the Australian products instead.”

As the region’s burgeoning middle class becomes increasingly health-conscious and the demand for milk continues to increase, fresh milk is already gaining a foothold in a market historically tied to its sweetened, condensed relative. Harvey believes that, in time, producers will focus less on increasing market share through production growth, and will instead try to win over consumers with higher-quality products.

“If you look at mature dairy markets in Europe and Australia, there’s virtually zero growth in consumption and it’s all about innovation – you’ve got liquid milk products exclusively containing A2 protein, lactose-free dairy products and a lot of cold-press flavoured milks. The markets in Southeast Asia are a long way off what we deem ‘mature’, but once they get to a certain degree of sophistication, the level of product innovation will accelerate,” he said.

Not only is there likely to be a shift in the kinds of products being consumed, product sales methods are also likely to shift. China’s dairy industry has seen large growth in online sales in recent years, with data from Vietnam-based Kantar Worldpanel showing that internet purchases accounted for 30% of imported milk bought in the country in 2015. This trend could soon come to Southeast Asia, with a report from Google and Singaporean firm Temasek calling Southeast Asia the world’s fastest-growing internet region. “It’s a game-changer,” said Harvey. “It gives dairy exporters in regions like Australia direct access to consumers, meaning they can reach even more people in the region.”

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