TARGET MARKET OPPORTUNITIES IN ASIA FOR FLUID MILK

TARGET MARKET OPPORTUNITIES IN ASIA FOR FLUID MILK Part of Asia Market Success, April 2016

IINNHHEERREENNTT LLIIMMIITTAATTIIOONNSS This work was commissioned by the Department of Agriculture and Food Western Australia (DAFWA), with funding through the State Government’s Royalties for Regions program and prepared by Coriolis. This work is based on secondary market research, analysis of information available or provided to Coriolis by our client, and a range of interviews with industry participants and industry experts. Coriolis have not independently verified this information and make no representation or warranty, express or implied, that such information is accurate or complete. Projected market information, analyses and conclusions contained herein are based (unless sourced otherwise) on the information described above and on Coriolis’ judgement, and should not be construed as definitive forecasts or guarantees of future performance or results. Neither Coriolis nor its officers, directors, shareholders, employees or agents accept any responsibility or liability to readers or recipients of this report other than DAFWA or people other than DAFWA who rely upon it (described below as Recipients) with respect to this document. Coriolis wishes to draw Recipients’ attention to the following limitations of the Coriolis document “Target Market Opportunities in Asia for the Western Australian Premium Products” (the Coriolis Document) including any accompanying presentation, appendices and commentary (the Coriolis Commentary): a. Coriolis has not been asked to independently verify or audit the information or material provided to it by or on behalf of the Client or any of the parties involved in the project; b. the information contained in the Coriolis Document or any Coriolis Commentary has been compiled from information and material supplied by third party sources and publicly available information which may (in part) be inaccurate or incomplete; c. Coriolis makes no representation, warranty or guarantee to Recipients, whether express or implied, as to the quality, accuracy, reliability, currency or completeness of the information provided in the Coriolis Document and any Coriolis Commentary or that reasonable care has been taken in compiling or preparing them; d. the analysis contained in the Coriolis Document and any Coriolis Commentary are subject to the key assumptions, further

qualifications and limitations included in the Coriolis Document and Coriolis Commentary, and are subject to significant uncertainties and contingencies, some of which, if not all, are outside the control of Coriolis; and e. any Coriolis Commentary accompanying the Coriolis document is an integral part of interpreting the Coriolis document. Consideration of the Coriolis document will be incomplete if it is reviewed in the absence of the Coriolis Commentary and Coriolis conclusions may be misinterpreted if the Coriolis document is reviewed in absence of the Coriolis Commentary. Coriolis is not responsible or liable in any way for any loss or damage incurred by any person or entity other than DAFWA relying on the information in, and the Recipient unconditionally and irrevocably releases Coriolis from liability for loss or damage of any kind whatsoever arising from, the Coriolis document or Coriolis Commentary including without limitation judgements, opinions, hypothesis, views, forecasts or any other outputs therein and any interpretation, opinion or conclusion that the Recipient may form as a result of examining the Coriolis document or Coriolis Commentary. The Coriolis document and any Coriolis Commentary may not be relied upon by the Recipient, and any use of, or reliance on that material by the Recipient is entirely at their own risk. Coriolis shall have no liability for any loss or damage arising out of any such use. AACCCCEESSSSIIBBIILLIITTYY Coriolis seeks to support the widest possible audience for this research. This document has been designed to be as accessible to as many users as possible. Any person – with or without any form of disability – should feel free to call the authors if any of the material cannot be understood or accessed. We welcome the opportunities to discuss our research with our readers and users. All photos used in this discussion document were either (1) purchased by Coriolis from a range of stock photography providers as documented, (2) received written permission to use Southern

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2

FFIINNAALL vv110000;; AApprriill 22001166

SCREENING OVERVIEW In Phase One of the Target Market Opportunities in Asia for WA Premium Products Report (TMO Report), extensive import/export trade data was fed through a multi-stage screening process to “hone-in” on potential opportunities for Western Australia; stakeholder interviews also fed into this process

3

STRUCTURE OF MULTI-STAGE SCREENING PROCESS USED IN THIS PROJECT Model; 2016

INDIVIDUAL FIRM ROLE & RESPONSIBILITY STAGE I STAGE II STAGE III STAGE IV

PLATFORM PRODUCT POSITIONING TARGET MARKET

FIT WITH WA

WA INDUSTRY-GOOD RESEARCH

9 PLATFORMS

679 TRADE CODES

47 QUAL/QUANT

SCREENS

Project does not attempt to address firm-level operational or executional activities: -  R&D

-  Product development

-  Sourcing & supply chain

-  Production & operations

-  Marketing & branding

-  Sales & sales structure

-  Capital structure

-  Negotiation

-  Distributor appointment

20 OPPORTUNITIES

YOU ARE

HERE

4 This project is focused on “market demand” from the following twenty-four Asian/Middle Eastern markets

Note: Complete list for analysis purposes, some countries excluded from list if no/limited trade data available (e.g. Iran)

24 COUNTRIES DEFINED AS HIGH POTENTIAL TARGET MARKETS FOR WESTERN AUSTRALIA Target markets; 2015

MIDDLE EAST

Bahrain Egypt Israel

Jordan Kuwait

Lebanon Oman Qatar

Saudi Arabia UAE

24 defined target markets for this project

4

SOUTH ASIA

India Pakistan Sri Lanka

Western Australia

SE ASIA

China Hong Kong

Japan South Korea

Taiwan Indonesia Malaysia

Philippines Singapore Thailand Vietnam

PRODUCT PROFILE

HS Trade Codes 040120/040110

Product Milk, not concentrated nor sweetened, low fat and regular

Out-of-scope Cream, milk powder, infant formula, dairy nutritionals, flavoured or sweetened milk, buttermilk, yoghurt, fermented products, whey products, butter, cheese

Origin Neolithic period in Southwest Asia and the Americas

Example ingredients

Milk

Forms/usage -  Beverage (by-itself)

-  Added to beverages (e.g. tea, coffee)

-  Ingredient in many dishes across many cuisines

Drivers of consumer/market success

-  Perception of dairy as healthy product, especially for children; endorsed by medical profession

-  Increasing middle class wanting better nutrition and Westernised diet

WHAT IS THE PRODUCT? Fluid milk emerged in Phase I as one of twenty “high growth, high potential” opportunities for Western Australia; fluid milk can be fresh/chilled or long life, but excludes sweetened and concentrated

5 Source: photo credit (Dollar Photo); Coriolis analysis

PRODUCT OVERVIEW Example; 2015

DOCUMENT STRUCTURE

What is the strategic situation in the market?

In this environment, what is the opportunity for Western Australia?

Who are the potential in-market partners?

Who are the key firms in Western Australia capable of delivering?

6

Western Australia is well-positioned to grow fluid milk exports to Asia

7

-  Asian fluid milk imports are rising, with import value growth being driven by increasing volume (particularly the 2011+ surge); average FOB (free-on-board) prices expanding above inflation

-  Asian & Middle Eastern fluid milk imports primarily come from a handful of countries and regions: Australasia (Australia & New Zealand), Germany and “other Europe”, and inter-Asian trade

-  Australia and Germany stand out for driving fluid milk trade value growth in Asia & the Middle East

-  Germany and other Europe (in aggregate) are driving growth over the past five years

-  Average achieved FOB price to target Asian markets vary by supplier, with Australia sitting in the middle of the curve

-  Fluid milk goes – in any quantity – to a handful of the target markets; China stands out as the largest, followed by Hong Kong, the Philippines and Singapore

-  Growth in fluid milk imports is a “Greater China” story

-  China has been the engine of import growth over the past five years

-  Average fluid milk import prices are relatively similar, other than a handful of very small, high value markets

-  Imported fluid milk consumption appears unrelated to per capita income

-  Market share varies by country; European countries stronger in Middle East than E/SE Asia; New Zealand, Australia and South America strong in East and SE Asia

-  Western Australia has opportunities for fluid milk export growth in key SE and East Asian markets

-  Data supports new high value, premium fluid milk opportunities being initially launched in (1) Singapore, (2) Hong Kong and (3) China

-  As a “Straw Man” for discussion, we identify an export market roll-out plan

Asian fluid milk imports are rising, with import value growth being driven by increasing volume (particularly the 2011+ surge); average FOB (free-on-board) prices expanding above inflation

0

100

200

300

400

500

600

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

8 * Compound Annual Growth Rate; Source: UN Comtrade database; Coriolis analysis and classifications

VOLUME T; 000; 2004-2014

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

AVERAGE PRICE PER KILOGRAM US$; 2004-2014

$-

$100

$200

$300

$400

$500

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

VALUE US$m; 2004-2014

CAGR* 12%

CAGR 4%

CAGR 16%

TOTAL IMPORTS TO ASIA/MIDDLE EAST TARGET REGION (24 COUNTRIES)

Asian & Middle Eastern fluid milk imports primarily come from a handful of countries and regions: Australasia (Australia & New Zealand), Germany and “other Europe”, and inter-Asian trade

9 NA/ME/CA = North Africa/Middle East/Central Asia; Note: data is as reported by sender (FOB), not receiver; Source: UN Comtrade database; Coriolis analysis and classifications

EXPORT VALUE BY SUPPLIER TO TARGET REGION US$m; FOB; 2014

Europe Australasia C/S America

Other

E/SE Asia USA

$199 $193 $16 $22 $11 $75

Other $11

Germany $120

France $22

Other C/S America $3

Australia $118

New Zealand $81

Uruguay $13

Belgium $9

Thailand $10

Indonesia $14

China $25

United Kingdom $12

USA $22

Other Europe $29

Other E/SE Asia $26

TOTAL = US$516m

Australia and Germany stand out for driving fluid milk trade value growth in Asia & the Middle East

10 Note: data is as reported by sender (FOB), not receiver; Source: UN Comtrade database; Coriolis analysis and classifications

EXPORT VALUE BY SUPPLIER TO TARGET REGION US$m; FOB; 2004-2014

Australia

2013 2011

USA

2012 2014

New Zealand

United Kingdom

Other Europe

China

2004

France

Uruguay

2005

Other E/SE Asia

Other

10y ABS

Other C/S America

Germany

2006

Thailand

Belgium

Indonesia

2009 2007 2010 2008

$1

$1

$17

$1 $1

$0

$0

$12

$15

$0

$0

$2 +$29

+$9 +$12

-$4

+$12

+$11

+$2 +$12

+$52

+$21

+$120

+$21

+$14

$235

$202

$160

$516

$389

$300

$128 $113

+$6

$192

$164

$138

+$85

$10 $9 $9 $16 $14 $11

$29 $22 $14

$11 $11

$19 $16

$18 $15 $13 $25 $23 $22 $20 $19

$14

$24 $25 $22

$3 $2

$1 $3

$3

$2

$2

$13

$6

$3

$0

$0 $0

$0 $0

$11 $9

$9

$0

$1 $0

$0

$17 $7

$6

$16

$5 $5 $14

$3

$80

$74

$69

$118

$26 $26

$29

$37 $38

$34

$40

$54

$43

$39

$34

$1 $1

$1

$1 $1 $1

$1

$58

$39

$50 $62

$81

$78

$70

$0 $0

$0

$0

$2 $1 $1

$4 $4

$2

$6

$0

$22

$12

$5

$19 $28 $20

$28 $0

$26 $40

$14

$29 $12

$17

$26 $21

$28

$1

$1 $0

$1

$2 $5

$2

$2 $5

$3

$1 $20

$120

$78

$45

$4

$9 $3

$1

$1

$1 $1

$1

$22

$18

$10 $0

$0 $0 $0

CAGR 16%

Germany and other Europe (in aggregate) are driving growth over the past five years


FIVE YEAR EXPORT GROWTH MATRIX: CHANGE IN VALUE VS. RATE OF GROWTH VS. ABSOLUTE VALUE US$m; 2009 vs. 2014

$100 $80 $0 $-20 $20 $60 $40 $120

0%

-50%

50%

125%

100%

$20m

Germany

Other

United Kingdom

France

New Zealand

Australia

Other C/S America

Uruguay

Thailand

Indonesia

China

Belgium Other Europe

USA

Other E/SE Asia

5y absolute change in value

5y CAGR

Bubble scale: US$m; 2014 A bubble this size=

Average achieved FOB price to target Asian markets vary by supplier, with Australia sitting in the middle of the curve


AVERAGE EXPORT VALUE COST CURVE BY SUPPLIER US$/kg; t; FOB; 2014

United K

ingdom

USA

Other C

/S Am

erica

New Zealand

Thailand

China

Other Europe

Germany

Other

Belgium

Indonesia

France

Uruguay

Australia

Other /SE A

sia

$0.86

$0.85

$0.97

$1.04

$0.71

$0.79

$0.98

$1.01

$1.77

$1.23

$1.16

$0.94 $0.88

$0.80

$0.95 Average

FOB value

Volume imported by defined target market

Fluid milk goes – in any quantity – to a handful of the target markets; China stands out as the largest, followed by Hong Kong, the Philippines and Singapore


IMPORT VALUE BY MARKET BY REGION US$m; FOB; 2014

NA

/ME/C

A

SE Asia East Asia

Indian Sub

China $274

$366 $0 $12

Other $0

Other $4

$138

Malaysia $12

Singapore $52

Thailand $0

Qatar $0

India $0

Egypt $0

Saudi $5

Israel $0

Kuwait $0

Taiwan $23

South Korea $2

Hong Kong SAR $66

UAE $2

Japan $2

Indonesia $1

Philippines $58

Bahrain $0

Vietnam $15

TOTAL = US$516m

Growth in fluid milk imports is a “Greater China” story


IMPORT VALUE BY MARKET BY REGION US$m; FOB; 2004-2014

Malaysia

Hong Kong SAR

Indonesia

South Korea

Vietnam

Thailand

Taiwan

Saudi Arabia

Japan

Philippines

2011

Other Ind. Sub

2005 2012

Israel

Singapore

2010

China

2008 2007

India

2006 2009 2013

Egypt

Other ME

2014 2004

$0

$3

$1

$0

$138

$0

$4

$0

$0 $0

$113

$0

$274

$2

$0

$128

$300

$6

$1

$19

$0

$9

$0

$10

$516

$389

$15

$11

$192

$0

$2

$164

$0

$0

$12

$202

$235

$160

$4

$0

$148

$0 $63

$11

$11

$57

$12

$5

$4

$66

$3

$6

$63

$0

$3

$41

$2

$43 $38

$2

$39 $38

$2

$48

$14

$1

$40

$23

$3

$1

$0

$10

$2

$13

$2

$1

$0

$0

$85

$35

$1

$1

$0

$1

$3

$1

$0

$6

$1

$4

$2

$9

$2

$4

$2 $3

$1

$0

$0

$1

$1

$0

$22

$1

$0 $0

$0

$0

$0

$0

$0

$0 $0

$0

$0

$69

$59

$62

$52

$2

$1

$2

$2

$24 $33

$0 $22

$43 $60

$3

$5

$39

$0

$1

$10

$2

$7 $4

$2

$0 $0

$5 $1

$0

$0

$0

$0

$4

$0

$1

$0

$1

$0

$0

$0

$1

$0

$0

$0

$1

$0

$4

$2

$3

$0

$0

$0

$0 $0

$12

$1 $0

$12 $19 $10

$2 $28

$0

$47

$0

$0

$40

$46

$58

$9

$54

$0

$3 $4 $2

$0

$0

$0

$10

$3

$14

$2

$1

$2

$0

$1

$0

$2

$1

$1

$27

$2

$12

$9

$10

$0

$0 $0

$0

$0

$4

$4

$3 $4

$4

$8 $3

$1

$6

$28 $30

$0

$0

$0

$0

$37

$25 $28 $0

$0

$0

$0

$0

$0

$0

$0

$0

CAGR 16%

Bubble scale: US$m; 2014 A bubble this size=

China has been the engine of import growth over the past five years


FIVE YEAR IMPORT GROWTH MATRIX: CHANGE IN VOLUME VS. RATE OF GROWTH VS. ABSOLUTE VALUE US$m; t; 2009 vs. 2014

100,000 -50,000 150,000

80%

0

60%

50,000 -40%

100%

-20%

0%

300,000 200,000

40%

250,000

20%

Sri Lanka

Jordan

Bahrain

$50m

South Korea

Kuwait

Hong Kong SAR

Israel

Indonesia

China

Japan

Qatar

Malaysia

India

Saudi Arabia

Philippines

Taiwan

Oman

Pakistan Egypt

UAE Lebanon

Vietnam

Singapore

Thailand

5y absolute change in volume

5y CAGR

Shift to quality Growing volume & value

Average fluid milk import prices are relatively similar, other than a handful of very small, high value markets


AVERAGE IMPORT VALUE COST CURVE BY MARKET/REGION US$/kg; t; FOB; 2014

Saudi Arabia

Qatar

United A

rab Emirates

China

Vietnam

Singapore

Jordan Pakistan

Taiwan

Lebanon

Hong Kong SAR

India M

alaysia

South Korea

Japan

Egypt Israel

Philippines

$0.85

$1.09 $0

.80

$0.94

$0.79

$0.86

$1.07

$1.18

$3.91 $1.4

1 $2.27

$0.84

$1.23

$0.93

$1.22

$0.84

$1.15

$1.46 $1.19

$1.37

Volume imported

Average import

value

Imported fluid milk consumption appears unrelated to per capita income

17 Note: data is as reported by sender (FOB), not receiver; Source: UN Comtrade database; Wikipedia (GDP/capita); Coriolis analysis and classifications

MARKET SIZE DRIVERS: GDP PER CAPITA VS. IMPORTS PER CAPITA VS. MARKET SIZE US$; l; l/000; 2014

$10,000 $60,000 $0 $30,000 $50,000 $40,000 $20,000

6.0

4.0

8.0

12.0

10.0

0.0

2.0

Vietnam

Singapore

100,000

United Arab Emirates

Thailand

Egypt

Jordan Japan

South Korea

Lebanon Kuwait

China

Sri Lanka

Bahrain Israel

Indonesia

Hong Kong SAR

Qatar

Philippines

Pakistan India Saudi Arabia Malaysia

Taiwan

Oman

GDP per capita

Imports per capita (l)

Size of bubble = total litres (000)

A bubble this size=

Market share varies by country; European countries stronger in Middle East than E/SE Asia; New Zealand, Australia and South America strong in East and SE Asia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Saudi Arabia

Bahrain

Kuw

ait

Israel

Jordan

Pakistan

Sri Lanka

Qatar

Om

an

Lebanon

Egypt

United A

rab Emirates

Japan

Thailand

South Korea

Philippines

China

Indonesia

Malaysia

Hong K

ong SAR

Taiw

an

Vietnam

Singapore

India

China

Indonesia

Thailand

Other E/SE Asia

Other

Other Europe

Belgium

United Kingdom

France

Germany

USA

Other C/S America Uruguay

New Zealand

Australia


IMPORT VALUE MARKET SHARE BY MARKET BY KEY SUPPLIER % of value in US$m; FOB; 2014

This is predominantly very small amounts of

inter-Middle East Trade

Western Australia has opportunities for fluid milk export growth in key SE and East Asian markets


AUSTRALIAN IMPORT VALUE MARKET VS. MARKET VALUE US$m; FOB; 2014

Malaysia

Singapore

Taiw

an

Pakistan

Qatar

Om

an Bahrain

South Korea

Thailand

Hong K

ong SAR Japan

Saudi Arabia

Israel

Philippines

Indonesia

Lebanon K

uwait

China

India

UA

E

Jordan

Vietnam

Sri Lanka

100

%

0%

2%

18%

0%

34%

13%

27%

0%

21%

51%

8% 3%

20%

35%

Total value of imports

Australian market share

Size of bubble = value A bubble this size=

Data supports new high value, premium fluid milk opportunities being initially launched in (1) Singapore, (2) Hong Kong and (3) China


WHERE TO FOCUS FOR NEW HIGH VALUE, PREMIUM PRODUCTS: AU SHARE VS. AVERAGE VALUE VS. MARKET SIZE % of value; US$; US$m; 2014

10% 90% 0% 80% 30% 50% 40% 20% 70% 60% 100%

$2.00

$1.50

$1.00

$2.50

$4.00

$3.50

$3.00

$0.50

$0.00

India

$20

Sri Lanka

Malaysia

UAE

Singapore

Thailand

Saudi Arabia Indonesia

Vietnam Kuwait

China

Oman

Qatar

Bahrain

South Korea

Taiwan Israel

Pakistan

Lebanon Jordan

Philippines Hong Kong

SAR

Japan

AU share of total import value

VALUE Average

FOB $/kg 2014

1 2

3

As a “Straw Man” for discussion, we identify an export market roll-out plan

21

PRELIMINARY “STRAW MAN” DEVELOPMENT & ROLLOUT PLAN FOR FLUID MILK OPPORTUNITY Model; 2016

1 Export market launch in Singapore

2 Export launch in Hong Kong

3 Export launch in China

0 Product development and testing

-  High income, sophisticated market and consumers

-  Manageable sized test bed -  WA already has a very strong

market position -  WA/AU is market leader and

should, therefore, lead

DOCUMENT STRUCTURE





22

Western Australia is well-positioned to grow fluid milk exports to Asia

23

IS THE MARKET DEVELOPED & COMPETITIVE?

-  The flow of fluid milk from the farm through to the consumer is straight forward and simple

-  Milk prices are attractive in Asia, with a premium for organic, fortified and some imported fresh milk

-  Asian markets match western countries in term of range and offer for fluid milk

-  “Leading indicator” Western markets suggest depth of fluid milk range in Asian is well-developed and competitive; this suggests limited range upside going forward

-  While Western retailers focus on fresh milk, Asian markets have a mix skewed towards long life milk

WHAT IS WA CAPABLE OF DELIVERING?

-  A wide range of premium, value-adding product attributes emerged from our cross-country retailer survey

-  Western Australian milk processors need to continue to move forward and improve through new products, either down a “natural” or a “science” path

-  Multiple potential positions exist to develop a premium fluid milk offer for Asia

-  Products from other processors in other markets demonstrate what is possible in terms of developing a premium Western Australian fluid milk offer

-  There are a wide range of potential product positions or claims available for a premium milk product from Western Australia targeting Asia

-  As a “Straw Man” for discussion, we identify two different potential opportunities for a high value, premium fluid milk product with select characteristics for export market launch

HOW IS THE MARKET STRUCTURED? The flow of fluid milk from the farm through to the consumer is straight forward and simple

24 Source: Coriolis

SIMPLIFIED MODEL OF SUPPLY CHAIN: FLUID MILK Model; 2016

Retailers

Foodservice & Institutional

Exports

Wholesalers

Distributor(s) (multi-layered in large markets)

Domestic Dairy Processor

Agent/Broker/ Distributor

In-Market Dairy Farmer

Logistics Providers

(Airfreight, Seafreight, Trucking)

WA Dairy Processor

Other Australian Dairy Processor

WA Dairy Farmer

NZ Dairy Processor

USA Packer/Processor

European Dairy Processor

Other Packer/Processor

This stage branches and adds multiple layers in large markets

WHO IS THE COMPETITION? PRICING Milk prices are attractive in Asia, with a premium for organic, fortified and some imported fresh milk

$1.21 $1.26

$3.30

$1.74 $1.84 $1.88

$2.29 $2.47

$2.57

$3.44

$2.16 $2.16 $2.42

$2.55 $2.80

$4.59

$0.62 $0.86

$1.09

$1.51 $1.53

Foremost U

HT

(T

H)

Foremost Fresh

(TH

)

Living Planet UH

T

Organic (A

U)

Devondale U

HT

(A

U)

Dutch Lady U

HT

(M

Y)

Magnolia U

HT

H

iCal LoFat (SG

)

Farmhouse Fresh (A

U)

Elle & V

ire UH

T

(FR)

Living Planet UH

T

Organic(A

U)

A2 U

HT

(AU

)

Devondale U

HT

(A

U)

Dutch Lady U

HT

(M

Y)

Pauls UH

T Phy

HiC

al LoFat (AU

)

Harvey Fresh U

HT

(A

U)

Emm

i Swiss U

HT

Prem

ium (C

H)

Harvey Fresh Fresh

(AU

)

Coles U

HT

Coles Fresh

Devondale U

HT

Bannister Dow

ns Fresh

Coles O

rganic UH

T

25 Source: Coriolis from store checks

SHELF PRICE PER KG ACROSS SELECT SE ASIAN MARKETS AND AUSTRALIA: SELECT FLUID MILK ITEMS US$/kg; Feb 2016

SELECT SE ASIAN RETAILERS AUSTRALIA

AU AU

Hong Kong Thailand Singapore

WHAT IS ON THE SHELF? RANGE IN MARKET Asian markets match western countries in term of range and offer for fluid milk

26 Source: Coriolis from store checks; photo credit (fair use/fair dealing; low resolution; complete product/brand for illustrative purposes); Coriolis analysis

EXAMPLE: ACTUAL UHT MILK RANGE ON SHELF Feb 2016

Singapore: GDP/Capita US$83,100 Australia: GDP/Capita US$61,887

IS THE MARKET DEVELOPED & COMPETITIVE? RANGE “Leading indicator” Western markets suggest depth of fluid milk range in Asia is well-developed and competitive; this suggests limited range upside going forward

84

69 69 69 65

62 59

83

74 69

62 57

50

Safeway (CA)

Woolworths (AU)

Wegmans (NY)

Coles (AU)

Tesco (UK)

Sainsbury (UK)

Waitrose (UK)

Park'N Shop (HK)

Wellcome (HK)

Tesco (TH)

Fairprice (SG)

Tesco (MY)

Cold Storage (SG)


NUMBER OF LINES ON SHELF: SELECT RETAILERS FROM ACROSS MULTIPLE MARKETS SKU; actual; Feb 2016

SE Asia Anglo-American

Average 65.8 sku/store Average 68.1 sku/store

IS THE MARKET DEVELOPED & COMPETITIVE? SEGMENTATION While Western retailers focus on fresh milk, (generally)Asian markets have a mix skewed towards long life milk

82

44

67

45 48 41 41

18

37 43

20 27

20

2

25

2

24 17

21 18 65

37 26

42 30

30

Safeway (CA)

Woolworths (AU)

Wegmans (NY)

Coles (AU)

Tesco (UK)

Sainsbury (UK)

Waitrose (UK)

Park'N Shop (HK)

Wellcome (HK)

Tesco (TH)

Fairprice (SG)

Tesco (MY)

Cold Storage (SG)

UHT

Fresh


NUMBER OF LINES ON SHELF BY PACK FORM: SELECT RETAILERS FROM ACROSS MULTIPLE MARKETS SKU; actual; Feb 2016

SE Asia Anglo-American

IS THE MARKET DEVELOPED & COMPETITIVE? PRODUCT ATTRIBUTES A wide range of premium, value-adding product attributes emerged from our cross-country retailer survey

15%

9%

6%

5%

3%

2%

1%

1%

Organic

Fortified - Calcium

Country in title

Lacto free

Fortified - Other

Fortified - Omega 3

A2 Protein milk

Kids milk


PERCENT OF OBSERVED PRODUCTS ON SHELF MAKING THE CLAIM ON PACK % of SKU; N=872; Feb 2016

-  This provide very clear instruction on what product attributes are succeeding the most across markets

-  Western Australian milk producers looking to grow value and share should focus in these areas

-  Organic and fortified stand out, with almost 1/3 observed product SKU being either organic or fortified, with calcium being the most common

-  Survey universe is all products in all listed retailers (across multiple countries)

TAKEAWAYS

WHAT IS WA CAPABLE OF DELIVERING? STRATEGIC DIRECTION Western Australian milk processors need to continue to move forward and improve through new products, either down a “natural” or a “science” path

30

SUGGESTED STRATEGIC DIRECTION: WESTERN AUSTRALIAN FLUID MILK Model; 2016

Reconstituted powder

UHT milk

Local suppliers are here

WA suppliers are here in Asia

Named Breed

Organic No pesticides or growth hormone

Non-homogenised

Added supplements (e.g.

Ginko, barley malt, collagen,

green tea)

Added vitamins

Named source region or local

High in calcium or added calcium

“Natural” Direction or Positioning

“Science” Direction or Positioning

Added prebiotics

Added Omega 3, DHA & ARA

Multinationals are here

Key competitors are here

USA/UK are are here

WHAT IS WA CAPABLE OF DELIVERING? CLAIMS Multiple potential positions exist to develop a premium fluid milk offer for Asia

31 Source: Coriolis; photo credit (Dollar Photo and Southern Forests Food Council Inc.)

IDENTIFIED POTENTIAL PREMIUM POSITIONS Model; 2016

Organic Fresh Single serve Excellent source of calcium

Identified source region Full cream Easy pour containers A2 proteins

Track & trace

Region specific Extended shelf life Vitamin & mineral enriched

Co-branded Lactose free

Low fat

Promotes bone health

Added omega 3,DHA & ARA

Added plant sterols

Bulk packed/bagged

Essential for healthy growth

HEALTH PROVENANCE INDULGENCE CONVENIENCE

Kid friendly characters

Animal welfare

Grass fed cows

Hormone/antibiotic free

Non-Homogenised

Non-Bovine

Breed specific

Not fed GMO

No growth hormones

No antibiotics

No toxic pesticides

Multi-Pack

WHAT IS WA CAPABLE OF DELIVERING? GLOBAL PEERS Products from other processors in other markets demonstrate what is possible in terms of developing a premium Western Australian fluid milk offer

32 Source: photo credit (fair use/fair dealing; low resolution; complete product/brand for illustrative purposes); Coriolis analysis

EXAMPLES OF PREMIUM PRODUCTS FROM OTHER MARKETS Select; 2016

Enriched fresh whole milk Skimmed milk Certified organic/USDA Lactose free

Iron for cognitive development UHT DHA Omega 3 Semi-skimmed

Vitamin D for bone development Convenient 6 pack Supports brain health 5 x 20ml portions

Rich in calcium

“super healthy, low fat just milk” Reduced fat milk

Children aged 1 to 5

Heat treated to last longer 38% less fat than whole milk

Mumsnet tried & tested

Vitamins A & D added

Vitamin A enriched Long life

Ultra-Pasteurised

On the go portion pack

Made in Denmark Handle for ease of pouring

WHAT IS A POTENTIAL WA OFFER? There are a wide range of potential product positions or claims available for a premium milk product from Western Australia targeting Asia

33 Source: Coriolis; photo credit (Dollar Photo and Southern Forests Food Council Inc.)

HYPOTHETICAL EXAMPLE OF POTENTIAL PREMIUM PRODUCT FROM WA Model; 2016

Vitamin fortified Added Omega 3 &

DHA

From Western Australia

Organic Australian

Flag

Fresh

Easy to pour

Fluid Milk

Essential for healthy growth

Region specific

HEALTH

PROVENANCE

INDULGENCE

CONVENIENCE

Grass fed cows

WHAT IS THE IDENTIFIED OPPORTUNITY? As a “Straw Man” for discussion, we identify two different potential opportunities for a high value, premium fluid milk product with select characteristics for export market launch

34 Source: photo credit (fair use/fair dealing; low resolution; complete product/brand for illustrative purposes); Coriolis analysis

PRELIMINARY “STRAW MAN” DEVELOPMENT & ROLLOUT PLAN FOR FLUID MILK OPPORTUNITY Model; 2016

CURRENT WA POSITIONING IN ASIA

IDENTIFIED HIGH GROWTH, HIGH VALUE OPPORTUNITY FOR WA

High in calcium Enriched with essential nutrients for growth

Organic Non-Homogenised

Low fat From Western Australia

UHT

POTENTIAL FUTURE PRODUCT LINE EXTENSION

Non-Bovine

Breed specific

Added DHA/ARA Added Iodine

Added Zinc Added Vitamins

Added Prebiotics Added Choline

Australian Flag

Not fed GMO

No growth hormones

No antibiotics No toxic pesticides

“Natural” Direction or Positioning

“Science” Direction or Positioning

“Designed to support brain development”

DOCUMENT STRUCTURE





35

FOCUS MARKET – 1 – SINGAPORE Singapore has a robust and well-developed food retailing and foodservice sector

$5.6

$3.9

$6.3

$1.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Turnover Purchases

36 Source: Coriolis from a wide range of sources

TURNOVER & PURCHASES US$b; 2014

ESTIMATED WHOLESALE FOOD & FMCG PURCHASES US$b; 2014

Foodservice Retail

$1.9 $3.9

Online $0.1

Traditional grocery $0.3

Supermarket $2.2

Convenience $0.4

Wet markets, etc. $0.7

Foodservice $1.9

Department stores $0.3

Petrol stations $0.1

Foodservice

Retail 6,500 restaurants,

hawker stalls, hotels, vending machines,

institutions (schools, hospitals, airline caterers,

prisons, etc.)

3.0%

5.0%

Retail

Foodservice

TURNOVER GROWTH RATE % Y-O-Y; S$; 2013v2014

FOCUS MARKET – 1 – SINGAPORE Four potential in-market partners are identified for Western Australian firms in Singapore

Firm NTUC Fairprice Cold Storage Sheng Siong Prime Supermarkets

Ownership National Trade Union Council (Singapore)

Dairy Farm International (Hong Kong)

Listed; Singapore Private; Singapore

Website www.fairprice.com.sg www.ntuc.org.sg

www.coldstorage.com.sg www.dairyfarmgroup.com

www.shengsiong.com.sg www.allforyou.sg

www.primesupermarket.com

Annual sales US$1.83b US$1.55b US$0.55b US$0.2b

Store formats Supermarket Hypermarket Convenience (Cheers; 139) Online

Supermarket (Cold Storage, Marketplace) Hypermarket Convenience (7-Eleven; 502) Online

Supermarkets Online

Supermarkets

# of stores 285 848 38 19

Store fascia


POTENTIAL IN-MARKET PARTNERS – SINGAPORE 2015 or as available

FOCUS MARKET – 2 – HONG KONG Hong Kong has a robust and well-developed food retailing and foodservice sector

$11.5

$8.0

$12.8

$3.9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Turnover Purchases




Retail Foodservice

$3.9 $8.0

Foodservice $3.9

CRA $0.3 CRE

$0.2

Wellcome $1.2

AEON $0.6

Drug stores $0.6

Wet markets, etc. $3.0

ParknShop $1.5

Other retail $0.6

Foodservice

Retail 14,000+ restaurants 1,000+ bars & clubs

1,050+ hotels Vending machines

Institutions (1,088 schools, 42 hospitals, 3 main airline

caterers, prisons, etc.)

6.7%

3.5%

Retail

Foodservice

TURNOVER GROWTH RATE % Y-O-Y; HK$; 2013v2014

FOCUS MARKET – 2 – HONG KONG Seven potential in-market partners are identified for Western Australian firms in Hong Kong

Firm Wellcome Park’N Shop CR Vanguard Dah Chong Hong 759 Stores AEON Stores Convenience Retail Asia

Ownership Dairy Farm International/Jardine Matheson

A.S. Watson/ Hutchison Whampoa

CRE/China Resources (SOE; China)

Dah Chong Hong/ CITIC Pacific/CITIC (SOE; China)

Private; Hong Kong (Lam Wai Chun)

AEON (Japan) Fung Group

Website www.wellcome.com.hk www.parknshop.com www.crvanguard.com.hk www.crc.com.cn

www.dch.com.hk

www.759store.com www.aeonstores.com.hk www.aeon.info

www.circlek.hk/en www.cr-asia.com

Annual sales (in HK)

$2.2b+ $2.8b ~$0.8b (food/FMCG) N/A N/A $0.8b $0.4b

Food store formats

Supermarkets 318 Convenience 921 Health & Beauty 369 Restaurants 676

Supermarkets 260+ Convenience

Supermarkets Convenience

Supermarkets Grocery 247+ Dept. stores (w/food) 8 Supermarkets 5

Convenience 600+ Bakery

# of stores Wellcome 280+ Marketplace 31 7-Eleven 900+ Olivers the Delicatessen ThreeSixty

ParknShop 175 PnS Superstore 50+ PnS Taste 10 PnS Fusion 14

CR Vanguard 100+ VanGo 79

DCH Food Mart 80+ DCH Food Mart Deluxe

759 Stores 247+ AEON 13 Circle K Saint Honore Cake

Store fascia


POTENTIAL IN-MARKET PARTNERS – HONG KONG 2015 or as available

FOCUS MARKET – 3 – CHINA China has a robust and well-developed food retailing and foodservice sector

$601

$421

$450

$135

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Turnover Purchases




Foodservice Retail

Supermarkets $126

$135

Traditional $71

Online $8

Foodservice $135

Wet markets $143

$421

Hypermarkets $63

Convenience $8

Foodservice

Retail 7m+ restaurants plus bars & clubs,

hotels/motels/etc., vending machines,

institutions (schools, hospitals, airline

caterers, prisons, etc.)

6.0%

7.0%

Retail

Foodservice

TURNOVER GROWTH RATE % Y-O-Y; CNY; 2013v2014

PRELIMINARY

PRELIMINARY

PRELIMINARY

FOCUS MARKET – 3 – CHINA Eighteen potential in-market partners are identified for Western Australian firms in China…


POTENTIAL IN-MARKET PARTNERS – CHINA 2015 or as available

Firm CR Vanguard Sun Art Retail Group Wal-Mart China Lianhua Carrefour China Yonghui Superstores Nonggongshang

Ownership China Resources (SOE; China)

Listed; HK; Auchan and Ruentex group

Listed; USA Listed; HK; Bailian Group Co.

Listed; France Listed; Shanghai; Dairy Farm 20%; JD.com 10%;

China

Website www.crvanguard.com.hk www.crc.com.cn

www.sunartretail.com www.rt-mart.com.tw

www.wal-martchina.com www.samsclub.cn

lianhua.todayir.com

www.carrefour.cn www.carrefour.com.cn www.carrefour.com

www.yonghui.com.cn www.ngs1685.com

Annual sales Total/Food

US$15.2b (13) US$14.0b (14) US$11.0b (13) US$10.5b (13) US$7.1b (13) US$5.3b US$4.6b

Food store formats

Hypermarket Supermarket Convenience

Hypermarket Online

Hypermarket Warehouse Club Compact HM Supermarket

Hypermarkets Supermarket 4,600 Convenience 1,905

Hypermarket 236 Convenience 3 Online

Supermarket Supermarkets 2,644 Convenience 1,700

# of stores 4,637 264 423 6,900+ 239 351 2,644

Store fascia

-  Alldays -  Kedi

FOCUS MARKET – 3 – CHINA … continued



Firm HNA Group Wumart Stores Better-Life Jiajiayue Group A. Best Supermarket Metro Cash & Carry Lotte Mart

Ownership Private; China Public; China Public; China Public; China Public; China Listed; Germany Listed; Korea

Website www.hnagroup.com/ www.wumart.com www.bbg.com.cn

www.jiajiayue.com.cn www.abest-xyj.com www.metro.com.cn www.metrogroup.de

www.lotte.co.kr


US$4.0b (13) US$3.3b (13) US$3.2b (13) US$2.9b US$2.7b US$2.7b (13) US$2.4b (13)

Food store formats

Hypermarkets Supermarkets Convenience

Hypermarkets Convenience

Hypermarkets Department stores Online

Hypermarket Supermarket Department store Convenience

Hypermarket Supermarket

Cash & Carry Hypermarkets Supermarkets

# of stores 482 547 445 601 116 75 110

Store fascia

Le Wan Jia Supermarket Jiangsu Chaoyue Supermarket Hunan Joindoor Supermarket

FOCUS MARKET – 3 – CHINA … continued



Firm Sinopec Group PetroChina Co. Dongguan Sugar & Liquor Group

Seven & I Holdings

Ownership Chinese government (SOE)

Chinese government (SOE)

Japan; listed

Website english.sinopec.com www.meiyijia.com.cn www.7-11.cn www.7andi.com www.sej.co.jp www.itoyokado.co.jp


US$455b (14) US$49.1b US$17.5b

Food store formats

Easy Joy uSmile Meiyijia Seven&I 301 Area licensees 1,763 - DairyFarm 740 - Others ~1,063

# of stores 23,300 14,000 5,580 2,064

Store fascia

DOCUMENT STRUCTURE





44

IDENTIFIED WA COMPANIES

BANNISTER DOWNS DAIRY

BROWNES DAIRY

HARVEY FRESH

ADDRESS: Muirillup Road, Northcliffe WA 6262 ADDRESS: 22 Geddes Street, Balcatta, WA 6021 ADDRESS: Lot 4, Third Street, Harvey, WA 6220

PHONE: 08 9776 4555 PHONE: 08 9441 7777 PHONE: 08 9729 0600

WEBSITE: www.bannisterdowns.com.au WEBSITE: www.brownesdairy.com.au WEBSITE: www.harveyfresh.com.au

45 1. article; Sources: Coriolis from a wide range of sources

LION DAIRY & DRINKS

MARGARET RIVER DAIRY CO.

MARGARET RIVER ORGANIC CREAMERIES

ADDRESS: 86 Radium St, Bentley, WA 6102 ADDRESS: 8063 Bussell Hwy, Metricup, WA 6280 ADDRESS: Jindong Treeton Rd, Treeton, WA 6284

PHONE: 08 9333 2888 PHONE: 08 9755 7588 PHONE: 08 9751 3117

WEBSITE: www.lionco.com WEBSITE: www.margaretriverdairy.com.au WEBSITE: www.margaretriverorganiccreameries.com

MUNDELLA FOODS

ADDRESS: 46 Randell Road, Mundijong, WA 6123

PHONE: 08 9525 5754

WEBSITE: www.mundellafoods.com.au

AUSTRALIA Coriolis Australia Pty Ltd

PO Box 5831 St Georges Terrace

Perth, WA 6831 Australia

+61 8 9468 4691

NEW ZEALAND Coriolis (New Zealand) Limited

PO Box 90-509 Victoria Street West

Auckland, 1142 New Zealand

+64 9 623 1848

www.coriolisresearch.com

Coriolis is the leading Australasian management consulting firm specialising in the wider food value chain. We work on projects in agriculture, food and beverages, consumer packaged goods, retailing & foodservice. In other words, things you put in your mouth and places that sell them. WHERE WE WORK We focus on the Asia Pacific region, but look at problems with a global point-of-view. We have strong understanding of, and experience in, markets and systems in Australia, China, Japan, Malaysia, New Zealand, Singapore, South Korea, Thailand, the United Kingdom and the U.S. We regularly conduct international market evaluations and benchmarking. WHAT WE DO We help our clients assemble the facts needed to guide their big decisions. We develop practical, fact-based insights grounded in the real world that guide our clients decisions and actions. We make practical recommendations. We work with clients to make change happen. We assume leadership positions to implement change as necessary. HOW WE DO IT All of our team have worked across one-or-more parts of the wider food value chain, from farm-to-plate. As a result, our recommendations are grounded in the real world. Our style is practical and down-to-earth. We try to put ourselves in our clients’ shoes and focus on actions. We listen hard, but we are suspicious of the consensus. We provide an external, objective perspective. We are happy to link our fees to results. WHO WE WORK WITH We only work with a select group of clients we trust. We build long term relationships with our clients and more than 80% of our work comes from existing clients. Our clients trust our experience, advice and integrity.

Coriolis advises clients on growth strategy, mergers and acquisitions, operational improvement and organisational change. Typical assignments for clients include… FIRM STRATEGY & OPERATIONS We help clients develop their own strategy for growing sales and profits. We have a strong bias towards growth driven by new products, new channels and new markets. MARKET ENTRY We help clients identify which countries are the most attractive – from a consumer, a competition and a channel point-of-view. Following this we assist in developing a plan for market entry and growth. VALUE CREATION We help clients create value through revenue growth and cost reduction. TARGET IDENTIFICATION We help clients identify high potential acquisition targets by profiling industries, screening companies and devising a plan to approach targets. DUE DILIGENCE We help organisations make better decisions by performing consumer and market-focused due diligence and assessing performance improvement opportunities. EXPERT WITNESS We provide expert witness support to clients in legal cases and insurance claims. We assist with applications under competition/fair trade laws and regulations.

Documents

TARGET MARKET OPPORTUNITIES IN ASIA FOR FLUID MILK