Tougher demands after horsemeat scandal
Stricter requirements on suppliers by international food retailers after horsemeat was found in burgers and lasagne in Europe are expected to be felt by New Zealand dairy farmers.
Dairy suppliers of Fonterra had no connection with the "Horsegate" scandal, but the reaction by major retailer Tesco to prevent a repeat scandal and repair food safety and integrity would have raised expectations, said David Hughes, a food marketing professor from the Imperial College of London.
He said New Zealand's strong understanding of the responsibilities of managing international supply chains for high value food, and the customer trust in their food, was its most precious and fragile asset.
"Horsegate in Europe has changed the relationship of suppliers and retailers and that's in your interest," he told a packed room at the South Island Dairy Event (SIDE) conference this week at Lincoln University.
The US$2 billion turnover company Findus was not expected to recover from horse meat being detected in its meat products this year. The discovery of 30 per cent horsemeat in burgers resulted in Tesco bosses making a public apology.
Hughes said Tesco had changed the way it was dealing with suppliers. The retailer was demanding fewer and more sophisticated suppliers, accurate labelling, the rebuilding of trust and was shortening supply chains by cutting out middlemen.
Shortening the supply chain should not raise alarm bells for New Zealand suppliers, as it did not mean it was only accepting food closer to Europe.
However, suppliers would have to conform to greater demands on the way farmers produced and managed food, if they wanted to keep their market share globally, he said.
Big business was serious about energy savings and sustainable measures, with a 60-page sustainable guide produced by Anglo-Dutch multinational consumer goods company Unilever.
Hughes said suppliers failing to run more sustainable operations would not be a customer to big businesses like Unilever, a major dairy user. Coles in Australia was among nearby large retailers taking on overseas models.
Big business was increasingly concerned about ethical food production, the provenance of the food and its story, he said.
"Are consumers willing to pay for more sustainable products and green food products? The fact of the matter is they are not. They just expect it."
Regulators were also demanding dairy farmers get on the "green train" and they were under closer scrutiny from the public through social media.
Hughes said farmers were "good fixers" and could do more to improve their environmental performance.
He said the customer trust in Kiwi dairy products was fragile, as shown by DCD and melamine scares.
Increasing dairy volumes was not the answer for New Zealand retaining its market share.
Fonterra had to raise its research and development spending to build an intellectual property special ingredient base, to deliver high margins and to put more money in regional brands such as Anlene.
Big retailers entering developing countries and partnering with major manufacturers such as Danone, Unilever and Nestle, want multibillion-dollar brands.
Hughes said farmers would have to accept investing more in their Fonterra business and put less money back into their farms.