Asia's milk supply gap grows; these are the dairy stocks you're looking for

Rabobank has estimated the annual milk deficit in ASEAN nations will only get bigger in the next decade; and it could benefit dairy stocks.

Many Australia dairy exporters have focused on China but are beginning to look to other markets due to trade tensions. And the ASEAN-6 nations are ideal candidates.

The ASEAN-6

The bank estimates the gap in ASEAN-6 countries (Indonesia, Malaysia, the Philippines, Singapore Thailand and Vietnam) is already 12.9 billion litres per year.

By 2030 this will balloon to 19 billion.

Rabobank analyst Michael Harvey expects the focus of dairy exporters to shift to the ASEAN-6 nations in the years ahead.

“The absolute market size of these collective nations is significant, and a growing milk deficit over the next decade in Southeast Asian countries will be a major ‘pull’ factor to propel dairy exporters to re-engineer their export growth strategies towards these markets,” he said.

“Given the scale and attractiveness of the ASEAN-6 markets, dairy exporters need to have the right level of exposure.

“And, while there are challenges, Rabobank is very optimistic about the future opportunities for dairy companies in these economies.”

Hervey named Indonesia and Vietnam as the standout markets because they had the strongest mix of positive macro-economic and demographic conditions making markets ripe for growth.

Dairy stocks that could benefit

The biggest beneficiary in the last five years has been New Zealand-headquartered A2 Milk (ASX:A2M) which is up over 2000 per cent in that time frame.

A2 is continuing to see demand from China in 2020. It even suggested, being Kiwis, they would benefit from a breakdown in the Australia-China dairy trade.

Its most significant non-China markets are Singapore, South Korea and Hong Kong.

With a market cap over $400 million Bubs Australia (ASX:BUB) is the next largest dairy stock that has a China focus since the acquisition of Bellamy’s.

Without ditching China, Bubs has been hedging its bets in pursuing sales channels in other ASEAN nations, particularly Vietnam and Singapore.

Nuchev (ASX:NUC), whose speciality is goat milk, heavily focuses on China but has named Singapore and Vietnam as medium term future markets.

Another relatively new play is Happy Valley Nutrition (ASX:HVM) which has not even begun construction on its facility in New Zealand’s Waikato region.

Nevertheless, it is eyeing off Asian export markets eventually and earlier this month won New Zealand Overseas Investment Office (OIO) approval for its facility.

Other dairy exporters include Keytone Dairy (ASX:KTD), Synlait (ASX:SM1) and Fonterra (ASX:FSF).