Quality and reliability - milk at any price

Quality and reliability - milk at any price

by Pininvest Analysis

Milk in Global Markets on pininvest.com

  • constituents
  • 14.4% 1y performance
  • 20.2% volatility
Check the investment theme exit_to_app

In the Western hemisphere, milk is just assumed to be a readily available natural resource, reliable and sold at a sharp price. Operating in a buyer's market, the milk industry and the distribution networks carry the burden of responsability to secure a fair deal to the farmers 

In this context, the crisis around salmonella-tainted baby milk produced by Lactalis (private) which came to light in January 2018 is concerning, because of the initially weak response of the company and because of the focus of the authorities on the French market. On both accounts, exports appeared to remain a secondary concern while the international reputation of the company and of French agricultural products on the world market was in play

The large food conglomerates, Danone of France , Nestlé of Switzerland and,undoubtedly, Lactalis itself recognize the necessity to manage the supply chain reaching the consumer. And their well established custom in traditional American and European markets will not obscure the shift of growth prospects to emerging countries, in Asia, in the Middle East and in Eastern Europe, where emerging middle classes expect value-added dairy products

Chinese consumers require special consideration both because of the fast expanding size and heightened expectations of a newly enriched population (still keenly aware of another baby milk scandal, adulterated with melamine in 2008, involving China Mengniu) and because the Chinese government seeks to guarantee - and whenever possible to control - a reliable supply chain of milk products the country itself cannot deliver

In this respect, New Zealand is very favorably positioned, with a domestic market requiring no more than 5% of the dairy farm production. The share history of infant formula producer Synlait (NZX - SNL) and of marketing and distribution firm a2Milk (NZX - ATM) confirm a highly profitable growth trend