Finnfund

The popularity of Elecster milk packaging systems is growing fast in China. The Finnish company’s latest step in this fast-growing market is a plant for producing packaging material. It began operations in the summer 2004 in Tianjin, near Beijing.

The popularity of Elecster packaging systems is due to the fact that they use plastic pouches that hold UHT milk, instead of pasteurised milk, which needs an unbroken chain of refrigeration. Ultra-High Temperature milk has a shelf-life of 1-3 months, depending on the packaging material.

Elecster has supplied China with 200 production lines to date, capable of producing about 10 million pouches per day. These dairies are situated in different parts of China.

“Now that we have a production plant, we have an integrated presence in the Chinese market,” says Elecster’s marketing director, Hannu Asunmaa.

“Previously the plastic film was imported from Finland but, because of growing demand, it made sense to produce it locally. The Chinese favour domestic products and prefer to use their national currency for purchases.”

Elecster Tianjin is entirely Finnish-owned. In addition to producing packaging material, it provides installation and maintenance services.

Building the plant a demanding job

Elecster chose the Tianjin Economic-Technological Development Area (TEDA) as the site for its production plant. Numerous foreign companies operate in the area.

“TEDA is slightly more expensive than many other areas but the amount of red tape has been pruned to a minimum there,” Asunmaa explains. “The city’s leadership is very sympathetic to foreign investors.”

The total value of Elecster Tianjin’s investment is five million euros. There will be 20-30 employees at the plant. Finnfund is supporting the project with an investment loan.

Building a plant in China is a tough job. Instead of buying it on a turn-key basis, Elecster decided to supervise the project itself, from start to finish.

“One of the tasks involved in establishing a plant is obtaining all the building permits,” Asunmaa points out. “The contractor also has to be carefully chosen, based on his past project references.”

Building work began in July 2003 and the plant became operational in the summer 2004.

“The Chinese are quick builders. It took slightly longer for us to finish the plant than if it had been an ordinary industrial building because the hygiene regulations for an establishment that makes food packaging material are extremely precise.”

Market leader in China

The material used for milk pouches is LDPE plastic with 3-5 layers. The raw material for the plastic is purchased on the world market. In future Asunmaa expects Elecster to use Chinese raw materials, too.

The capacity of the Tianjin plant is two thousand tonnes of plastic a year. That’s enough for 600 million milk pouches.

“Chinese demand for plastic film is about 20 million tonnes a year, so China presents an opportunity for us,” Asunmaa says.

He estimates that about 60 percent of milk purchased in China is in plastic pouches. Elecster is the market leader in manufacturing the pouches. Other foreign companies have left the market, so the competition is from local suppliers.

“Some competitors have copied our systems. The only way to fight piracy is product development. We have to make ever-better products and systems.”

Elecster began targeting the Chinese market as long ago as the mid-1980s. Around that time the Finnish company set up a sales office in Beijing, but the early years were a quiet time.

“Then things began happening,” Asunmaa recalls. “China’s dairy sector took off rapidly at the end of the 1990s.”

There is no end in sight for the fast growth in dairy production. The Chinese leadership wants to boost milk consumption to improve national health.

“Encouraged and supported by the government, annual consumption has risen to about eight litres per capita, though in Finland we drink 150 litres per capita. In China an increase in average consumption of one litre creates a need for three million litres of daily capacity, which means establishing about 100 new production lines.”

The growth of dairy production is also an important economic matter, especially in poor rural areas, Asunmaa adds.

Packaging equipment sold to 60 countries

Based in Kylmäkoski, Central Finland, Elecster has so far sold its pouch-filling equipment to about sixty countries. Most of its customers are in Asia, Africa and Latin America, where warm climates and difficult transport connections guarantee a steady demand for UHT milk.

In practice the company’s whole output goes abroad because milk pouches disappeared from Finnish shops in the early 1970s.

“At that time people frowned on plastic packaging materials for environmental reasons,” Asunmaa says. “Now environmental considerations are driving sales of milk pouches because recyclable plastic is an environmentally friendly form of packaging.”

For further information please contact Mr. Matti Kerppola tel. +358 9 3484 3334, email firtname.lastname@finnfund.fi