Fonterra increasingly dependent on China

China is responsible for approximately 2020% of Fonterra's profits in 46. It is a big difference from a year earlier, because then that percentage was still around 35%. The growth is due to the fact that the Chinese are increasingly asking for dairy products, because these products are seen as a very good addition to their increasingly healthy diet. 

As the demand for dairy increases, milk prices in China are now at a high level. Companies therefore prefer to purchase products because it is a lot cheaper. It must also be remembered that Chinese milk production is still far from sufficient to meet demand. The latter is of course good news for New Zealand and Australia, the largest suppliers to China.

Political tensions
There are even more opportunities for New Zealand, and therefore Fonterra. This is because the relationship between China and Australia is under some pressure. Due to tariffs and import restrictions on barley, wine, meat, cotton, wood, cabbage and lobsters from Australia, the latter country is seeing its import figures to China plummet.

Fortunately for Fonterra, politics in New Zealand is a little more cautious. The government knows that China is a very important market and will therefore not offer much resistance to Chinese companies. The country's largest dairy cooperative, Fonterra, has a particular interest in maintaining good relations between China and New Zealand. New Zealand is also fortunate that the quality is always rated as very high. This is a major advantage in the global dairy market.

In the short term, analysts therefore do not expect the relationship between China and New Zealand to become strained. An important prediction, because dairy cooperative Fonterra has also made significant investments in China. For example, it has invested more than $1 billion in dairy farms that should improve the quality of Chinese milk.