Marginal return on milk solids argument flawed
A senior Fonterra official has defended claims that the dairy industry should stop producing products sold at a marginal commodity price.
A recent newspaper column argued that the industry was putting the environment at risk by increasing commodities production when the return was marginal.
This argument was flawed in the wake of enormous world demand for food and dairy, Fonterra general manager of shareholder relations Matt Bolger said.
The factors which caused dairy prices to tumble were not a sign that dairy demand was not still strong, he told rural professionals at the NZ Institute of Primary Industry Management's annual conference in Hamilton.
While milk-price volatility would continue, the long-term outlook was good, thanks to the rise of the middle class in emerging markets.
"It's an absolute phenomenon that's changing the world we live in."
People started to consume dairy products when they reached an income of $10 per day per person.
"As more and more people come out of poverty and start entering those formal markets, we expect the demand for dairy to continue to rise," he said.
Bolger expected the globally traded dairy market to increase from 50 billion litres to 85 billion litres by 2020 and the global dairy market to increase from 375 to 500 billion litres over the same period.
He said arguments that New Zealand exporters were oversupplying markets were incorrect.
"We have got an enormous challenge to feed the world. That is an enormous demand pool as people come out of poverty and start consuming more as the population increases."
It all pointed to an extremely positive outlook in the dairy industry, he said.
The co-operative had also been investing heavily in its capacity so it could better handle bumper production seasons and changes in the value of its revenue streams between making a tonne of milk powder and a tonne of value-added products, such as cheese.
"The idea is to have some buffer, so we can flex around our product mix."
He defended the environmental performance of its farmers, whose attitudes he believed had changed.
Bolger thought expectations of sustainability would only increase as time went on.
Recently, for the first time, officials from Nestle travelled to New Zealand to conduct on-farm assessments instead of auditing Fonterra's dairy factories.
They visited 50 randomly selected Fonterra farms and assessed them for food safety, animal welfare, environmental impact and staff and labour management.
"What we are seeing is customers and consumers being far more interested in where their food is coming from, and how it is produced."
That was also coming through in New Zealand, where consumers were interested in what was happening on the farm from an environmental and animal welfare point of view.
"That pressure on farmers to be doing the right thing is going to increase significantly."
Bolger also brushed off the threat of synthetic milk. Fonterra's view was that it would be extremely hard for a synthetic product to match all the nutritional properties of milk.
"Milk is a biological product that very closely mimics human milk, and it's a fantastic nutritional product."