The Land of Milk and Money
"My bones are so brittle. But I always drink plenty of... malk?"
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G’day guys, gals and galahs. #40 in ya inbox. Going deep on a couple topics today, specifically, the dairy industry within Asia and then Vitasoy the company. Sorry if this ain’t quite up your alley, I can’t choose where my curiosity takes me ¯\_(ツ)_/¯. I’ve had a shocker of a week, so little shorter on the commentary today. I’m buggered. A quote from Philip Glass to start:
I don't know what I'm doing and it's the not knowing that makes it interesting.
Here’s the format of today’s email:
Part 1: The Land of Milk and Money
Part 2: Vitasoy
Part 3: Bonus Quirky Content - Something to Read, Watch, and Listen
The Land of Milk and Money
What is the dairy industry in Asia like? As someone who did GOMAD (gallon of milk a day) more out of love for the liquid white gold rather than gains, Asia is dare I say lacking in the dairy department. Limited choices and high prices have been my experience when travelling throughout. But the times they are a-changin’. So my scatterbrain took me down into the dairy dumps to find out what’s going on with dairy in Asia!
Opportunities in Dairy in Southeast Asia [Link]
Was originally written for opportunities specific to New Zealand, but is still valuable. This report is from 2014, which sadly feels like yesterday, but turns out it’s not. So yeah some of the numbers are dated, but the core info is still good.
Why the ASEAN market is so important for Australia and New Zealand is a bit of a no brainer. Like usual it comes down to market size (plus the demographics are favourable too), plus the expected growth of these economies:
Mapping the Asian Dairy Industry [Link]
This is some outstanding work by Michael. Yes, you need to be a paying member to view it, but I highly recommend it, I’m one myself. Michael covers the demographics, dairy penetration, some of the dairy players, and much more. Also has a lot of pretty graphics!
The Asian dairy industry has underlying growth momentum, especially in Southeast Asia, where penetration rates are low and demographics excellent. […]
The products that are growing the fastest are those that are perceived to be healthy, including probiotic drinks, plant-based milk alternatives, etc.
With this backdrop, I find Vinamilk, Ultrajaya and A2 Milk to be particularly attractive.
Really want to highlight this below paragraph. It echoes similar analysis I’ve read here in Australia. Dairy Farmers get screwed, Dairy Companies go alright.
The dairy companies tend to capture most of the economics in the supply chain, having bargaining power over the much more fragmented dairy farming industry. Ownership of brands, differentiated products and customer loyalty might also explain the higher margins and return on capital of these businesses.
The Ongoing Modernisation of China’s Dairy Sector by PwC [Link]
Am I meant to be able to find these PWC reports easily? I don’t know and I don’t care. Bask in the gloriousness that is the Chinese Dairy Sector with me.
Between 1980 and 2006, China’s raw milk production increased by more than 2000% from 1.4 million tonnes to over 30 million tonnes. Production peaked at 33 million tonnes in 2012. Consumption has continued to increase, but dairy production has declined. More than 30% of China’s dairy products (measured in raw milk equivalents) now come from imports, compared to about 5% in 2007
Interesting to read about the dairy processing side in China. It’s consolidated hard, Yili and Mengniu together processed about 25% of raw milk production in 2010 but by 2017 had 45%.
The largest three dairy processing companies in China account for about 50% market share, and the top two processors purchase 45% if the country’s raw milk production. In contrast, the top ten dairy farming companies together deliver less than 25% of China’s raw milk production. This gives large processors significant pricing power over farms.
Deep-dive 2021-19: Ultrajaya Milk [Link]
Very timely and fits this weeks theme perfectly! I’ve drunk so much Ultrajaya Milk in Bali it’s not funny. It’s the only way to get my milk fix okay!
Indonesians only consume 15 litres of milk per capita and year. That number can be compared with neighbouring Malaysia, which consumes close to 60 litres. It’s still rare for Indonesians to consume milk regularly. That is not the case in other Asian countries and I believe that the gap will narrow over time. Looking at Euromonitor reports, the Indonesian liquid milk market seems to be growing around 10% per year on a secular basis, and UHT milk [which Ultrajaya focuses on] is growing faster.
The Australian Dairy Industry The Basics by PwC [Link]
Do you know Australia is the world’s third-largest dairy exporter and exports ~50% of production?
A Winning Growth Formula for Dairy by McKinsey [Link]
“Asia has the most potential as measured by the number of consumers and GDP per capita, for example, but dairy faces a slow adoption curve”
Hell yeah I’m a soy boy. I love this stuff. Maybe not as much as milk, but Vitasoy is sick so went deep on the rabbit hole here.
Homegrown Hong Kong: the wholesome story of Vitasoy [Link]
The success of Vitasoy? Like Goldilocks porridge, it’s juuuuuust right:
Guidetti says part of the company’s success is that its soy milk isn’t as heavy and rich as home-made soy milk, nor is it as neutral-tasting as soy milk in Western countries. Si is originally from Hunan, and he first tried Vitasoy on a business trip to Hong Kong in 1995. “It’s more drinkable,” he says. “You can’t drink a lot of the rich soy milk made the traditional way because it’s very heavy.”
The Story of Vitasoy 維他奶的故事: From One Man Soy-milk Delivery to Multinational Beverage Giant [9 mins]
Only 500 views on YouTube! I live to find gems like these.
Making Vitasoy “Local” in Post-World War II Hong Kong: Traditionalizing Modernity, Engineering Progress, Nurturing Aspirations [Link]
It’s a niche read. But niche is fun! Credit to Off-Piste Investing for sourcing this, if you don’t already know about his work, you should!
Vitasoy entered the scene in colonial Hong Kong as a means of national and bodily salvation, traditionalizing modern (read: Western) notions of science, medicine, and health. […]
In the emerging market of Hong Kong, not only could notions of Western modernity readily become incorporated into the local repertoire, but what could be construed as “Chinese traditions” also varied according to the contours of regional differences. Mindful of this nuanced landscape, Vitasoy promised to deliver nutritional goodness, as calibrated by Western science, while adhering to what were considered longstanding practices of Chinese materiality in Hong Kong. […]
More than the potential of soymilk as an elixir of national salvation, Vitasoy embodies a signifier of progress and modernity accessible to the aspiring consumers of Hong Kong’s emerging middle class.
The Tyranny of the Bottle: Vitasoy and the Cultural Politics of Packaging [Link]
Ok, this is probably even nicher considering it’s talking about the Vitasoy bottles themselves.
Vitasoy’s commercial success as a soft drink should not occlude considerations of its packaging history. […] Vitasoy’s milk bottle had been an attempt to reorder the economy of qualities of what Hong Kong people should eat and drink such that those activities became confluent with global discourses of science, power, and health. One drank milk, because milk was deemed resplendent with the proper forms of goodness needed to build strong bodies and vibrant societies. The milk bottle, with its attendant system of subscription-based delivery, was central to reconfiguring the value of soybean milk and imbuing social meaning to consumption. Lo’s use of the milk bottle to sell Vitasoy reflected some of the quintessential tensions defining early twentieth century China. The desires to be strong and independent, to be modern and Chinese can be discerned in this bottle, because the bottle—the glass, the system of delivery that brought glass bottles to local homes, the contents it held, the factory that produced it—was itself a sign of Chinese aspiration and Chinese modernity
The Soy Process - Vitasoy Soymilk production [Link]
Quick 2-minute vid to see the manufacturing process for soymilk.
A Mature Hong Kong Brand Rejuvenated in the Mainland Market [Link]
Securities report from 2017 so the valuations are out of whack, but the business model stuff still valuable.
Sweet taste, Sweet return [Link]
Same again, an older securities report, but still worth including.
Something to read: After Xi: Future Scenarios for Leadership Succession in Post-Xi Jinping Era [Link]
Jordan Schneider suggested this to me in our recent conversation, and it’s a great read into maybe understanding how this may play out. There are essentially four ways:
Orderly Transition of Power in 2022: Chances are slimmer by the day
A Succession Plan to Retire at 21st Party Congress in 2027 or the 22nd Party Congress in 2032: Xi may continue to “rule from behind,” much as Deng Xiaoping played kingmaker after he gave up his final remaining leadership title in 1989.
A Leadership Challenge or Coup: “The chances of a coup being mounted against Xi at the moment, absent a systemic crisis, are exceedingly small”
Unexpected Death or Incapacitation: Self-explanatory. Let’s face it, Xi ain’t the picture of good health. “Xi Jinping is 67 years old, has been a smoker, is overweight, has a high-stress job, and, according to state media, “finds joy in exhaustion.”
See also: Xi's potential 2027 transition poses threat to Taiwan: Davidson [Link]
changes in the [People's Liberation Army]'s capabilities, with their missile and cyber forces, and their ability to train, advance their joint interoperability and their combat support logistics, all those trend lines indicate to me that within the next six years they will have the capability and the capacity to forcibly reunify with Taiwan, should they choose force to do it. [,…]
That choice becomes much more probable within the next six years because of the potential for Xi Jinping's transition in 2027, as his political future is determined principally by himself, and his ability to garner some support for that may depend on that 2027 timeline.
Something to watch: Miniso - The Notorious Copycat Brand That's Taking Over Asia [12 mins]
Miniso got me. They fkn boomed me. They’re so good.1 Had me fooled, I deadset assumed Miniso was a Japanese company. This video is great at illustrating their strategy and business model and maybe why I shouldn’t feel so bad that I got duped.
Something to listen to: David Nangle, CEO of VEF – Unlocking Fintech Investment Opportunities in Emerging Markets [Apple Link]
Admittedly more focused on LatAm and Eastern Europe than SEA, but interesting nonetheless.
Something to listen to: Simon Fu - Understanding China's Banking System [Link] [Apple Link]
Chinese banking system. So hot right now.
Something to listen to (from me): Angelica Oung on Compounding Curiosity [Transcript] [Apple Link]
I’m super interested in Taiwan so talking with Angelica was amazing. She has so much insight and energy and I hope that comes across! Covered Taiwan’s relationship with the CCP and just Taiwan in general.
it’s almost like we [Taiwan] are a pawn. That is a role actually we should embrace because if you play chess, you know that your pawn moves are tremendously important and a well-positioned pawn can be very valuable. So we have to recognize our place in the world, which is a pawn that is placed on a very, very key part of the chess board.
So rather than the analogy of the pawn being dismissive, I would say Taiwan should embrace it. We are that pawn that is in that critical square of the Asian-Pacific. We’re basically holding down the first dial in chain. If we go, basically we’re blowing out all of Asia in terms of being a sphere of influence for China.
Bonus links that don’t fit anywhere else:
SEA: Garena - Building a Global Gaming Cash Engine [Link]
“The longevity of Free Fire is one of the most important questions facing Sea investors. Garena is the cash engine crucial to funding Sea’s other loss-making growth businesses, and the majority (65-70%) of Garena’s earnings single-handedly come from Free Fire”
What's the deal with France getting mad at the US for submarine sales to Australia? [Link]
This Reddit comment is legitness. “the EU will be left more to its own devices, both politically and militarily. Meaning that it’s up to them on how to keep NATO going and Russia in check. The US has other problems to deal with at the moment […], and France, as well as other European powers, may be concerned about this loss of support, EU's ability to deal with it, and what the future of NATO will look like going forward, where countries like France and Germany will now be expected to take on the lead role, rather than the US.”
Ideas That Changed My Life [Link]
Old but gold. “Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works.”
Until next Wednesday my dudes, have a good one!