The growing emphasis on quality and growing consumer trends in Southeast Asia's dairy industry has for some time attracted a number of private equity (PE) firms into the sector, with many stepping up their bets to earn multiples in the coming years.。

Dairy products, once considered "best to have" by Southeast Asian consumers, are now a necessity。Dairy consumption growth in emerging markets has benefited from the region's favorable demographics, growing middle class and higher discretionary spending.。Amit Kunal, managing partner at Growtheum Capital Partners, said: "As per capita income grows, people tend to choose healthier foods.。In 2023 alone, the company made two major dairy industry investments in Vietnam and Indonesia.。

In April, Growtheum announced a $100 million investment in Vietnam International Dairy Company (IDP).。In September, the PE firm injected $70 million into Indonesia's KIN Dairy。In response, Kunal said: "While other consumer categories have slowed slightly, this segment continues to grow.。"

In other deals this year, General Atlantic invested 1 in PT Cisarua Mountain Dairy (Cimory), a dairy company listed on the Indonesian Stock Exchange..300 million dollars。Meanwhile, Vietnamese milk producer VitaDairy is looking to sell a 30% stake。

Dairy companies have also received private equity investments in the past.。Dymon Asia Private Equity and Southern Capital Group funded the acquisition of The Holstein Milk Company and F & B Nutrition Malaysia in 2018 and 2019, respectively, both of which were significant transactions in the region.。Meanwhile, TPG and Northstar also acquired the consumer dairy business of agri-food company Japfa in Southeast Asia three years ago.。

Back in the day, the main reason private equity investors are bullish on the industry is the growing population and wealth of Southeast Asia.。Andy Ho, chief investment officer of VinaCapital, was an investor in Vinamilk and IDP in Vietnam.。In his view, the market, which has a population of about 100 million, currently has a per capita GDP of only about $4,000 and there is plenty of room for growth.。

Martin Lemoine, head of agribusiness investment at the Asian Development Bank (ADB), said a wide range of high-quality products, from ultra-high-temperature sterilized milk to yogurt and cheese, have greatly met people's needs, making the industry more attractive.。ADB is anchor investor in Cimory's IPO on local bourse in 2021。Not only that, it's a limited partner at Growtheum。

It is understood that in 2021, the Indonesian dairy market revenue reached 5.1 billion U.S. dollars, and the compound annual growth rate from 2016 to 2021 was 12..3%; the market is expected to exceed $7 billion by 2026。

Cimory CFO Brahat Joshi sees his company as a beneficiary of this rapid growth。"Indonesia has historically lagged behind ASEAN countries in dairy consumption, but as income levels have steadily risen, demand for dairy products has begun to grow significantly.。"

Statistics show that by the end of 2021, Vietnam had more than 200 dairy producers.。Researchers have estimated that the country's dairy revenue almost doubled from $4.4 billion in 2017 to $8.4 billion in 2021.。In 2021, Vietnam's per capita milk consumption is only 28 liters, far lower than Thailand's 35 liters and Singapore's 45 liters, but it is expected to reach 40 liters in 2030.。

Lemoine said there are multiple opportunities in the dairy industry in Southeast Asia and the entire Asia-Pacific region, and also revealed that ADB is planning several new investments.。

Despite the potential for growth, supply chain problems continue to hamper dairy businesses in the region.。In response, Joshi noted that Indonesia's farming practices are still fragmented and underdeveloped logistics infrastructure hinders the distribution of products nationwide.。"Building a farm requires large tracts of land, favorable climatic conditions and good water tables, as well as significant capital investment and expertise in managing capital, and perhaps that is why investment in the industry has declined over the past decade," he said.。

For countries such as Indonesia and Vietnam, milk is a net import for their countries。In Vietnam, domestic production meets less than half of demand。

"Vietnam's dairy market has matured and grown in size, attracting many investors," Ho said.。However, due to its heavy dependence on imports, the strategic value of the industry and its growth over the next 5-10 years deserves careful consideration by investors.。"When investing, we need to get a return of 15-25% per year for the next 3-5 years, and these big companies are basically unable to meet this growth target.。"

And Lemoine believes ADB can use its industry investment experience in countries such as China, Bangladesh, Azerbaijan and Mongolia to help dairy companies source high-quality raw milk and reduce the carbon footprint of the dairy production process.。

ADB recently invested in convertible notes from an aquaculture company in Vietnam to produce seaweed that helps reduce methane emissions from dairy cows.。