Indian deal is 'crucial'

"It is a huge market, with a billion people, and growing by 8 per cent each year. We would not want to ignore it."

A retiring director of Fonterra says the co-operative hopes a free-trade agreement can be reached between the New Zealand and Indian governments, as it will help the dairy trade.

Greg Gent said the development of the Indian market was important for Fonterra, as at the moment, there was a 50 per cent tariff on dairy imports.

"A free-trade agreement is crucial, really. It would give us a lot of confidence and it would support the dairy industry," he said.

"It is a huge market, with a billion people, and growing by 8 per cent each year. We would not want to ignore it. Some people say it is the China of the future."

The Government and India have agreed that there will be a decision by March.

"There is a deal time, rather than being open-ended as many free-trade agreement discussions are, and there is goodwill on both sides," he said.

Mr Gent was in Newbury, near Palmerston North, to talk about the future of Fonterra. About 80 people were on hand. They were dairy farmers, retired farmers, investors, bankers and rural business people.

Mr Gent said India had 70 million dairy farmers, and many thought Fonterra would give them grief with competition.

But although India was the world's largest dairy producer, it was all consumed internally, and Indian farmers could not keep up with the growth in demand, he said.

"Fresh milk will always be produced in India, but it is short of the processed milk that we can provide. A lot of our dairy materials are sold as ingredients.

"That's the part of the market that is in deficit," he said.

"India is only interested in food security. New Zealand sees it as a growing market, with one billion people, of whom 700 million are not in poverty."

Mr Gent said if a trade deal was done, there would probably be a long lead-in for Indian dairy farmers, but he was not worried, as behaviours started to change almost immediately.

"And I think it's easy to forget, Asia is a near-neighbour. So for shipping and things like that, it is our home patch."

He also talked about DIRA milk. It is the dairy regulation that forces Fonterra to give milk to independent processors at a regulated price.

"DIRA has been in place for 10 years. It has had time to see how it has evolved. It is certainly due to be reviewed.

"Fonterra accepts without question that there should be a competitive market for milk in New Zealand."

He said there was no way that people should feel the price of milk was too high because of a lack of competition.

"But the export is a completely different story. Most of the DIRA milk goes to companies for export. That was never part of the thinking behind the regulations."

He said most of the companies that could take milk from Fonterra were exporting milk powder.

"There is a feeling that should change, and hopefully it will. It is only reasonable that our competitors should have to source milk from their own suppliers. It's hard to argue against the logic of that."

Mr Gent said Fonterra needed a licence to operate and grow in New Zealand, and acceptance of that.

Fonterra turned over almost $20 billion last financial year.

"But Fonterra must be environmentally aware and close behind that, is the animal welfare issue. The world has a "Bambi" view of animals and even New Zealand has become more urbanised now, with fewer people understanding commercial farming," Mr Gent said.

"The big message is without Fonterra, what would New Zealand look like? That is the single biggest challenge for everyone in this room, to get that message out."

- © Fairfax NZ News