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China’s Pizza Passion Has Fonterra Riding Wave of Mozzarella

April 14, 2014

The New Zealand-based company plans to lift mozzarella output to 50,000 metric tons a year by September 2015, enough to garnish about 350 million pizzas.

While China’s economy may be slowing, its love affair with pizza is raging.

And from Hoboken, New Jersey, to Pudong, Shanghai, you can’t make pizza pie without mozzarella. That’s good news for Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter and China’s top supplier of the cheese.

The Auckland-based company plans to lift mozzarella output to 50,000 metric tons a year by September 2015, enough to garnish about 350 million pizzas. It forecasts demand for the cheese in China will gain about 20 percent this year and next.

Yum! Brands Inc., operator of restaurant chains including Pizza Hut, estimates China’s consuming class will double to 600 million people by 2020, driving demand for fast food. Fonterra, which also supplies Domino’s Pizza Inc., is raising mozzarella output across its two New Zealand plants and aims to more than double the number of its offices and operations in China to 50 locations to meet dairy demand.

"Particularly in Asia, they like the stretch of mozzarella and couple of times a night in a Pizza Hut or a Domino’s, or a pizzeria, they’ll have stretch contests," Rene Dedoncker, Melbourne-based director of Fonterra’s foodservice division, said in an interview. "The appetite of the consumer in China for Western diets and for pizza, which is seen to be quite iconic," is forecast to keep growing, he said.

Units in Fonterra Shareholders Fund declined 0.2 percent to NZ$6.17 at the close, trimming their advance this year to 6.4 percent.

City Shift

China is consuming more protein and dairy as changing tastes are accelerated by a population shift to the cities. Urban inhabitants spend two and a half times more on food compared to those in the countryside, HSBC Holdings Plc said in a March report. That’s spurring growth in a global pizza market that was worth about $125 billion a year at the end of 2012, according to Euromonitor International Plc.

Fonterra, which got 13 percent of its revenue in China in fiscal 2013, according to data compiled by Bloomberg, has invested NZ$72 million ($62 million) to raise mozzarella output at its Clandeboye, New Zealand, plant. New technology will enable the company to cut to one day from two months the length of time it takes to make the cheese, Dedoncker said.

"The growth of fast food and processed food throughout Asia is leading to higher demand for processed cheese and mozzarella," said Mark Topy, a Melbourne-based analyst at Canaccord Genuity Group Inc. "There’s going to be some opportunities in that space for companies that can provide a long term supply of mozzarella."

First Pizza Chain

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