Dairy products used in baked goods are booming due to a rise of specialty bakeries and lifestyle cafes across the region, the Australian and New Zealand listed co-operative said on Monday. Its products have also found their way into popular dishes like egg tarts in Thailand, banh mi rolls in Vietnam, ube jam in the Philippines and crepes in Indonesia.

In Thailand, the popularity of ready-to-eat and ready-to-drink items sold in convenience stores like 7-Eleven is further driving demand.

The New Zealand-based dairy giant behind household brands such as Western Star butter, Mainland cheese and Perfect Italiano cheese also said its consumer business remains under review and could still be sold off. Fonterra put the Australian arm of its business up for sale in May.

“South-East Asia is shaping up as the next growth market for Fonterra’s food service business outside of China,” the co-operative said on Monday in Wellington.

Excluding China, Asia’s dairy import volumes rose by 13.2 per cent in June compared to the same period a year earlier, with South-East Asia responsible for much of this increase, the company said.

Over the 12 months to June, the region’s dairy imports rose 8.3 per cent due to strong demand for whole milk powder from Malaysia and Bangladesh, and fluid milk products from Vietnam and the Philippines.

The company said tourists returning to South-East Asia over the last three years is a big reason for this uptick in demand.

The co-operative, which is owned by farmers, said if it sells its consumer business it will seek shareholder sign-off and return a “significant” amount of the cash made from the sale to them.

“The co-operative’s improved returns will primarily be driven by increased earnings in ingredients and food service, along with operational efficiencies,” chief executive officer Miles Hurrell said on Monday. “We also intend to make a significant capital return to shareholders if we divest our consumer business.”

Fonterra’s Australian arm has eight manufacturing sites across Victoria and Tasmania and employs about 1600 people. It collects about 1.4 billion litres of milk annually from hundreds of Australian farmers.

The Australian operations are for sale as part of a divestment of Fonterra’s Oceania division. The co-operative is also considering the sale of all of its global consumer business and Fonterra Sri Lanka.

New Zealand farmers produce the bulk of Fonterra’s milk, and the co-operative said on Monday it was lifting its farmgate prices in a bid to attract and keep Kiwi farmers amid declining milk collection, which has dropped more than 6 per cent in three years to 16 billion litres in the 2023-24 season.

Fonterra also said it was increasing its dividend policy to 60 per cent to 80 per cent of earnings, up from an average of 50 per cent. It forecasts a milk price of $NZ9 ($8.26) per kilogram for 2024-25, up from $NZ7.83.

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