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em>New Zealand'€™s largest dairy company Fonterra, which owns the popular Anlene brand in Indonesia, launched a packing plant in Cikarang, West Java, last year. The company is competing against local brands such as Prenagen, HiLo and Ultrajaya. During a recent visit to Indonesia, Fonterra chief financial officer Lukas Paravicini spoke to The Jakarta Post'€™s Khoirul Amin about his company'€™s plan to strengthen its presence in the country. Below are excerpts of the interview.

Question: How is Fonterra'€™s new US$36 million manufacturing plant in Indonesia progressing?

Answer: It is fully finished and operational. We started mid-last year to produce, so we are already at a very good level of utilization and efficiency. It is contributing significantly already to our Indonesian business by producing our Anlene and Boneeto products. What I think is very interesting is also how we transport best practices of know-how and how we import that from our other plants around the world. I was very excited to see that our team in Indonesia, in a very short time, has taken those best practices and now runs a factory to the Fonterra standard.

We have still some capacity, so the full capacity [of the plant] would be about 20,000 tons a year. Right now, we are at roughly 60 percent, which is very good for a six-month-old factory. What is important as well is our operational excellence, which means how well we run, is very high, so we'€™ve made a very good start.

We have a total of 290 workers and currently about 100 people in the factory. We believe the factory will run by about 160 workers at full capacity in the next six to 12 months.

Why did your company choose Indonesia as the investment destination and how important is the country for your company'€™s business?

Fonterra is a large dairy company based in New Zealand. When you talk about dairy, you are talking about global dairy production of about 400 billion liters of milk. One of the largest dairy markets is India, but India consumes everything it produces. So, when you go from the 400 billion liters of milk you then go to the next segment, which is tradable milk, milk that is exported or imported because you do not have either enough milk to consume or you have too much product. So, that is about 60 billion, that is 15 percent of the total milk and that is the market we are playing [...].

You have three regions that have big exports. New Zealand exports 95 percent of its production '€” roughly 20 billion liters of milk. The European Union, the 28 member countries, is the largest producer, especially Germany, Belgium and Ireland. Europe produces about 150 billion liters of milk, but only exports about 7 to 8 percent, so less than New Zealand'€™s export ['€¦]. Then you have the United States, which produces about 80 billion liters of milk and exports about 5 percent ['€¦].

On the demand side, you have Russia, China and then a lot of the Southeast Asia region and Africa ['€¦] because those regions have difficulty producing quality milk on a large scale. New Zealand, meanwhile, is known for high-quality, pure fresh milk.

Fonterra has a market share of 60 percent of whole milk powder and about 55 to 60 percent of butter. It is very relevant to play in the market where you trade milk, ['€¦] where there is naturally not enough milk and where growth is important. Dairy consumption is very much related to growth of population and urbanization. If you take Indonesia, the number of people that will come to the market and are more mobile and demand tasty but nutritious food will rapidly grow. And Indonesia has been growing in that sense. Clearly Indonesia is a key market for us in the ingredient business to provide what was milked. There is a lot of room in Indonesia. I think per capita consumption here is 12 liters a year, you take Malaysia at 40 liters, Singapore at 60 liters ['€¦]

So, Indonesia plays a predominant role in our strategy in capturing value in this growing dairy market through not only the ingredients, but also through Boneeto, Anlene, etc.

Indonesia is obviously well-positioned for us to leverage the regional position. Clearly the intent here is to grow in Indonesia and in Southeast Asia. Clearly there is room for growth and to optimize our production across this region.

Does Fonterra have any plan to expand investment in the country in the near future, for example to develop dairy farms?

We do. Again, Indonesia'€™s milk consumption is only 12 liters per capita. With our focus, with our passion for consumers, there will be growth.

Indonesia is a very competitive market because it is a very interesting market, a very growing market, the other companies are also looking at Indonesia ['€¦]. So yes, we would look at investing further in years to come in a growing business, and we will definitely contribute to dairy development in Indonesia.

How do you foresee your business in the country this year and what can the Indonesian government improve to better facilitate your business?

We do not publish forecasts, but we would like to see the market to grow double-digits in the next few years to come.

We focus on the consumer and the brands you probably well know, but one of the segments we are growing very rapidly that is very important for Fonterra is a food service business. It is not always front of the mind but it is a key element to our strategy. I told you about ingredients, the next step is food service and consumer business. Typically if you look at the global business, right now 20 to 25 percent is consumer food business, 10 percent is food service.

I think every country can always work to improve the economic framework, the labor framework for business to better compete and especially for people to develop. Further liberalization and flexibility of labor market will continuously help ['€¦], further training, improvements in schooling and the whole education [system]. There is always room for improvement, but as a company we will work with whatever environment there is and develop what we can.

How will Indonesia'€™s participation in the Trans-Pacific Partnership (TPP), if materialized, benefit your business?

We look at free trade agreements from a more holistic point of view. I think like many smaller markets you probably have to go back and understand New Zealand history. Today, New Zealand'€™s dairy industry is absolutely subsidy-free and the most efficient dairy industry in the world.

Fonterra supports the New Zealand government very actively in any free trade agreement effort, be that with the EU, TPP, etc. So we welcome the TPP; it is a very good thing. Having said that, we are disappointed that with the TPP we did not take the opportunity to include the dairy industry in the reduction or abolishment of tariff and duty or barriers. So, the TPP will bring a lot of good things to many countries, but unfortunately we missed that big opportunity to include dairy. There are some benefits on beverages, but dairy was not really included to the extent we would have hoped, so the TPP would have a positive effect in the long run for all countries, including Indonesia, but I cannot really comment because it does not have much dairy.