Malaysia boom in fresh dairy fosters Holstein IPO plan, entry of new player

23, Dec. 2020

Holstein Milk Company Sdn Bhd Managing Director Loi Tuan Ee is seen at one of his farms which produce the popular Farm Fresh brand of fresh milk and yoghurt products. (Photo courtesy of Holstein)
Holstein Milk Company Sdn Bhd Managing Director Loi Tuan Ee is seen at one of his farms which produce the popular Farm Fresh brand of fresh milk and yoghurt products. (Photo courtesy of Holstein)

By Charlotte Chong

KUALA LUMPUR, NNA - When Malaysia imposed a severe lockdown from March to May to curb the novel coronavirus from spreading, the local producer of Farm Fresh milk incurred losses amounting to 5 million ringgit as demand for dairy products from hotels and eateries plunged dramatically.

However, there was a silver lining. People, who had to work from home while adhering to the government's Movement Control Order (MCO) restrictions, started snapping up cartons of fresh milk and other dairy products from shops, individual dealers and supermarkets as well as from online.

The surge in retail sales saved the day for The Holstein Milk Company Sdn Bhd, which produces Farm Fresh fresh and UHT milk, flavored milk and yoghurt products.

The market leader, which commands slightly more than half of the fresh milk market in Malaysia, said the upswing also included a higher demand for chocolate milk and yogurt drinks as children were consuming them more at home as schools closed.

The lockdown also coincided with the Muslim fasting month, which fell in April and May this year, when the demand for nutritional dairy products for drinking, making drinks and cooking goes up traditionally.

Despite heavy losses from the hospitality and F & B sectors, which saw many closures and limited operations during the severe shutdown, The Holstein Milk Company (Holstein) managed to gain back “8 to 9 million ringgit from the retail side," its founder, Loi Tuan Ee, told NNA.

"We still managed to grow about 15 percent to 20 percent throughout March to May from retail,” he reported, adding that the hospitality and F&B sectors contribute about 15 percent to sales normally.

Other major regional dairy players like Fraser & Neave (F&N), and Meiji Holdings Co. in Thailand also reported a spike in retail sales in Malaysia and surrounding regions during the lockdown months in the first half of 2020. F&N and Holstein also reported strong growths from online channels.

London-based market research agency Euromonitor International expects retail sales of fresh milk in Malaysia to grow from 414.7 million ringgit this year to 581.3 million ringgit in 2024.

Its food and nutrition research consultant Emil Fazira said fresh milk and UHT milk sales through retail channels are expected to grow by 10 and 6 percent respectively this year.

“Home seclusion and children staying at home have bolstered demand, but the key factor that drives growth is the perceived health benefit of milk,” Emil told NNA via an email reply.

While fresh milk prices have remained stable, dairy producers have held promotions with discounts of 5 - 10 percent from time to time to boost sales.

All the three producers reported that this was an acceleration of the upward trend in yearly consumption of fresh milk and yoghurt products in recent years when there was no COVID-19 menace. They cited factors such as the greater awareness of the health benefits of fresh milk and a growing senior population seeking calcium-fortified milk.

According to Malaysia's department of veterinary services, the nation's consumption of fresh milk in 2019 went up 4.32 percent to 70 million litres from the previous year. About 40.5 million litres were produced locally by 64 commercial dairy farms and 692 small producers, said Dr Suratan Kamarudin, the department's deputy director general.

Local fresh milk production had increased by 11 percent or 4 million litres more from 2015 to 2019, Kamarudin noted. Industry players are hoping to make Malaysia self-sustainable in local milk production by 2025.

While the milk producers in big countries like the United States and Japan were saddled with a glut as demand dropped during the pandemic, it was a different situation in Malaysia.

Food and beverage giant F&N, which imports fresh milk from Australia, said it had no fresh milk surplus due to fallen demand from hotels and eateries during lockdown months in Malaysia because higher demand from consumers confined to homes had bolstered sales.

Listed on the Malaysian stock exchange, F&N also pointed out that the ageing demographics in Malaysia have demanded more wholesome foods like fresh milk and created a market potential for foods enhanced with healthy nutrients like calcium. The company, which has been importing milk from Australia, has plans to start dairy farming to produce fresh milk locally.

Regional dairy products manufacturer Meiji Holdings in Thailand concurred that the increase in home consumption contributed to its favorable sales in Asia. So, it had to stock up supplies on shelves regularly as it does not sell the perishable products to consumers online.

Without divulging details, Meiji said its overall sales of fresh and fermented dairy products had grown 1.1 percent year-on-year in the first six months ended Sep. 30 this year. The operation profit for the same segment jumped by 40 percent in the same period, the Japanese company told NNA Kyodo in an email reply.

“The sales of yoghurt have increased significantly due to increased health management consciousness,” added Meiji Thailand, which obtained its supplies from farms in Thailand and China.

Meanwhile, Meiji has confidently set its sales targets for two major markets by March 2021 - 23 billion yen for China and 13.5 billion yen for Southeast Asia.

Agreeing that people are turning to healthier and fresher products, Loi of Holstein said many are switching from milk powder, which requires proper storage, to fresh, natural milk for better nutrition.

He should know, as fresh milk consumption has shot up over the past six years after he set up the company and expanded the business. There are plans for further expansion and taking the company public, according to media reports.

Starting with just 60 Holstein Jersey cows imported from Australia, Loi’s herd has grown to a huge number of 3,500 cows spread over two world-class, purpose-built facilities.

His fifth farm, in Taiping in the state of Perak, will start production in the third quarter of next year. It will add another 10 million litres of fresh milk each year, said Loi, who was bowled over by the reception of Malaysians to locally produced fresh milk.

In a virtual interview with NNA, Loi revealed that the company has been in discussion with the Sarawak government to start a dairy farm and processing plant in the East Malaysian state.

“They are offering us about 1,000 acres of land at the Lawas area in Sarawak, so we are looking to do a possible joint venture.”

On the company's phenomenal growth, it said on the Farm Fresh brand website, "Farm Fresh was growing faster than Loi could have ever imagined. To help expand his operations, he enlisted the help of his old friend Azmi Zainal as partner and brought in Khazanah Nasional, the strategic investment arm of the Government of Malaysia, as an investor in the company. These collaborations laid the groundwork for the company’s continued success."

There has been talk that shareholders including Khazanah Nasional, were planning to sell some of their holdings in Holstein as part of a deal that could raise about $100 million ahead of a potential initial public offering in 2021, Bloomberg reported. A representative for Holstein said the company had appointed an adviser for an IPO submission next year, it added.

Leading the fresh milk market with a share of more than 50 percent in Malaysia, Holstein produces about 27.3 million litres of fresh milk each year,

Farm Fresh products are also sold across the causeway in Singapore, where its fresh milk sales have doubled this year, said Loi.

“Our fresh milk products are still dominating sales. However, we are also improving our ultra-high-temperature processing (UHT) segment,” he said. Online sales have become even more robust this year, generating about 30 percent of its revenue, Loi added.

F&N CEO Lim Yew Hoe told NNA that the company has also scaled up its e-commerce platform to leverage on the significant surge in meal preparations at home. It has been rolling out online and retail promotions throughout the year to entice consumers to its wide range of products under the Farmhouse and Magnolia labels, which are also widely sold in Singapore.

While he declined to disclose F&N's dairy market share and the contribution from the fresh milk category, Lim maintained that Magnolia and Farmhouse products have remained popular with consumers.

In a statement filed with Bursa Malaysia recently, F&N said its exports from Malaysia grew by nearly 10 percent helped by strong sales to the Middle East, Africa, and Asean markets.

Despite F&N's failed attempt to acquire land in Perlis state for its maiden venture into dairy farming on Malaysian soil, it is not giving up.

Lim told NNA, “We have accumulated much knowledge and insight on crop and dairy farming. The group will continue to evaluate and seize opportunities to realize this ambition.”

Lim Ban Keong and Nor Livestock MD Qasem Alhasan at Nor Livestock Farm in Batang Kali, Selangor State on Nov. 8. 2020.(Photo courtesy of Rhone Ma)
Lim Ban Keong and Nor Livestock MD Qasem Alhasan at Nor Livestock Farm in Batang Kali, Selangor State on Nov. 8. 2020.(Photo courtesy of Rhone Ma)

One new-comer which has jumped onto the bandwagon to help fulfill Malaysia's plan in self-sustainability in fresh milk is Rhone Ma Holdings Bhd.

Rhone Ma has been producing more digestible A2 milk from Holstein cows imported from Australia at its first farm since the middle of last year.

Selling its milk through wholesalers for repackaging at this stage, Rhone Ma plans to produce up to 65,000 litres of fresh milk each month, said the company whose main business is producing and distributing animal health products.

Rhone Ma managing director Lim Ban Keong hopes the government would extend more financial aid to smaller farmers to help meet the self-sustainability goal together.

“It is easier to develop these existing entrepreneurs as they already have a wealth of experience and knowledge but lack support in terms of financing, infrastructure and manpower," he told NNA in an email.

Meanwhile, to keep the interest of milk drinkers high, dairy producers have flavored their products with local fruits and popular food ingredients such as guava, pineapple, dates, hazelnut and red bean, noted Emil of Euromonitor.

She said, “This trend will likely persist over the forecast period till 2014, as products like flavored drinking milk and yoghurt also rely on impulse sales, causing low brand loyalty. And thus, manufacturers will continue to push out new flavors as the competition intensifies.”

Fresh milk products on chilled shelves in a supermarket in Malaysia where milk consumption has seen a healthy growth. (NNA)
Fresh milk products on chilled shelves in a supermarket in Malaysia where milk consumption has seen a healthy growth. (NNA)