Sizing Up China and India

Since 2005, the global consumption of milk and other liquid dairy products (LDP), excluding soy and dairy alternatives, has reached a compound annual growth rate (CAGR) of 2.4%. LDP consumption hit an all-time high of 258 billion liters in 2008 and is expected to grow by a CAGR of 2.2% over the next three years, according to the June issue of the Tetra Pak Dairy Index, a biannual report that tracks dairy consumption trends around the world.

The Thailand School Milk Program has provided nearly two billion packages to over seven million children.

Leading much of this growth in the global dairy industry – 96% over the past four years – are highly populated and emerging markets such as China, India, the Middle East and Pakistan (see Chart 1). In these markets, continued population growth and rising household income, along with new dietary trends, consumption habits and preferences are fostering awareness, the demand for and the consumption of dairy products.

Chart 1. CAGR in top 10 milk* consumption markets (2005-2008).

Market round up

• China
In 2008, China replaced the US as the world’s second largest milk consumer after India. The consumption of LDP in China has grown by a CAGR of 13.4% from 2005 to 2008, reaching record levels in 2008 – some 27 billion liters, and 39.4 billion liters when including soy milk and dairy alternatives such as rice, nut, grain and seed-based milks (see Chart 2).

Chart 2. Milk consumption in China reached record levels at 39.4 billion litres in 2008.

In the wake of the melamine issue in China, whilst the consumption of white milk declined slightly and the consumption of other LDP such as flavored milk slowed, soy and grain milks grew fast. In fact, over the last three years, the consumption of flavored milk, liquid cultured milk and soy milk has been increasing – with a CAGR of 15%, 23.8% and 4% respectively. The consumption of white milk and other LDP in China is expected to reach pre-melamine levels by the end of 2009.

• India
Driven by steady population growth and rising income, milk consumption and production continue to rise in India – the world’s largest dairy producer and consumer. In terms of milk consumption, India tops the charts, consuming 51.5 billion liters of milk and other LDP in 2008 – with a CAGR of 2.7% over the last four years. This is almost double the volume consumed by the number two milk consumer, China.

Since 1999, the Index has found that India has produced more milk than any other country in the world and since 2006, milk production has increased by a CAGR of 4.3%. These high levels of consumption and production in the country are mainly driven by a population of 1.3 billion people, where milk is an integral part of their diet.

Since many Indians are vegetarian, milk serves as an important source of protein. They use milk or other LDP in most food preparations such as in brewing tea and coffee, in making yogurt or curd and in preparing Indian dishes such as curries. Milk is also a popular beverage for children in India due to its nutritional value.

• Vietnam
In other developing countries such as Vietnam, consumption behavior continues to change as household incomes increase and dairy products, which are not traditionally part of the Asian diet, become widely available. In these markets, novelty and nutrition are helping to drive the demand for diary products. As a result, the consumption of LDP in Vietnam for example increased by nearly 10% over the past four years to 984 million liters.

Packaging for convenience
As the dairy category continues to grow, the way products are packaged and consumed in high growth, developing markets is also changing. Worldwide consumption of packaged LDP is growing faster than unpackaged LDP and is expected to reach approximately 72% of total – packaged and unpackaged – global consumption by 2012, driven by developing countries. As milk consumption in these markets grows, concerns about health and safety and the desire for greater convenience are fueling the trend towards packaged milk – particularly long-life packaged milk, which does not require refrigeration or preservatives.

Currently 65% of the milk consumed in India is packaged in “loose” or unpackaged form, where milk is poured from one container into another. However, for reasons of health, safety and convenience, milk is increasingly consumed in either pouches or cartons. Over the past four years, the consumption of milk and other LDP sold in pasteurized plastic pouches has grown at a rate of 4.5% annually while milk sold in cartons has grown at a rate of 24.6% annually.

• Distribution channels
The way milk is sold also differs by culture. Around the world, supermarkets or hypermarkets are the main sales channel for milk and other liquid dairy products. Small grocery retailers and other types of retailers are also slowly gaining market share at their expense. In China and India, supermarkets represent a relatively small percentage of overall milk sales. In China, 42.5% of the milk and other liquid dairy products are sold through small grocery retailers. In India, only 5% of the milk is sold through traditional retailers; 70% is delivered to the homes of consumers by “milk agents” and 25% is sold through vending machines or small street side kiosks in the more urban areas.

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Investing in India and China

Today, China is Tetra Pak’s largest worldwide market in terms of the number of packages delivered. In July 2008, the company opened a new packaging material plant in Hohhot, Inner Mongolia. It is among the first in the country to exclusively use “green electricity”. About 60 million euros ($86 million) is invested to build the plant, bringing the total investment in the country to 250 million euros. With three existing production sites in China, the new plant brings the company’s total capacity to 50 billion packs a year,

To meet the growing demand from India and other emerging markets in the Indian subcontinent, the company recently announced an investment of 88 million euros to build a packaging material manufacturing plant in India. The new plant will have an initial capacity of four billion 1-litre packages per year.

www.tetrapak.com