Fonterra’s CFO warns that New Zealand has hit “peak milk.”

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Fonterra’s top finance officer warns that we have achieved “peak milk” and are approaching the age of “flat milk”

Marc Rivers stated that he does not anticipate the volume of milk produced in New Zealand growing again, “so, I guess we could go ahead and call that peak milk”

Environmental constraints were limiting the amount of land that the dairy business could occupy.

“We don’t see any more land conversions going into dairy – that’s quite a change from before,” he added.

He’d also watched dairying land dwindle. Rare farmers had switched dairy property to forestry or horticulture, or even houses or solar farms in some circumstances.

Fonterra chief financial officer Marc Rivers

Fonterra chief financial officer Marc Rivers says Fonterra is in a new era of ‘flat milk’. Photo: RNZ / Dan Cook

Productivity gains could offset some of the losses of dairying land, but the industry wouldn’t see the same level of growth it saw 10 or 15 years ago.

As a result, he predicted the volume of milk produced in New Zealand would flatten or decline.

Fonterra is the country’s biggest processor with the co-operative, owned by about 10,000 farmers, processing approximately 80 percent of New Zealand’s milk. In the 2020 financial year it posted a $659 million profit after tax.

Rivers said he was banking on the global demand for milk, which is growing by 2-3 percent each year, to boost Fonterra’s earnings even as production levels remain flat.

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Fonterra, he said, would need to squeeze more out of every drop of milk, partly by pitching a brand message about sustainability.

Fonterra is New Zealand’s biggest greenhouse gas emitter, however in comparison to other countries, the carbon footprint of our on-farm milk production is low.

An AgResearch study commissioned by DairyNZ found New Zealand’s on-farm carbon footprint was 48 percent less than the average of 18 countries studied. However, the study didn’t include emissions from transporting and processing milk. These account for a smaller portion of emissions than what’s produced on farms, but they do include the emissions created from processing dairy’s biggest export product, whole milk powder. At present, much of this is dried with coal-fired furnaces.

Rivers said Fonterra would be using its “New Zealand providence” lower carbon footprint story to obtain higher prices for its milk .

“For the first time in Fonterra history, we can start to be a little bit choosy about who we sell to, and maybe pick out just those customers who really value what we have to offer, which is this sustainable way of making dairy,” Rivers said.

Fonterra also intended to get more “nutritional mileage” out of every drop of milk, with research underway at its Palmerston North research facility and fortified high-calcium brands already on the market.

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He also stated that there was space for further developments, such as non-bovine milk. “If farmers choose to make some different choices about their land, then there could well be a role that Fonterra as a processor could play.”

But, looking 30 years ahead, he still regarded cows’ milk as the company’s mainstay.

Fonterra’s peak milk admission, according to KPMG’s global head of agriculture Ian Proudfoot, is an indication of a changed attitude.

“That’s probably now something that we need to be coming to terms with, that growth from maybe our traditional animal protein sectors isn’t going to be at the levels that it’s been at for the last 20 years.”

Looking to the future, he thought farms would get a make-over, with massive dairy farms becoming less common.

“My expectation is, we start a little bit of a journey back to the farmyard that we recognise from our childhood, that we used to see in books, where there was more than one thing happening on a farm yard.”

This will lead to a bigger range of export products, including plant-based goods.

Global shipping woes, which began when the Covid-19 pandemic started, had sparked concerns about New Zealand’s reliance on shipping exports.

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Proudfoot questioned whether the primary sector needed to explore “exporting a growing system and IP [intellectual property] that underlies that growing system, rather than potentially exporting the product itself”.

New Zealand may therefore offer turn-key solutions as a one-time transaction or as part of an ongoing agreement in which New Zealand receives monthly revenue from licenced manufacturers.

Zespri International has previously done this by collaborating with fruit farmers in Italy, France, Greece, South Korea, and Japan during New Zealand’s off-seasons.

Fonterra, on the other hand, has lately backed away from its own entry into this paradigm, selling shares in two joint-venture Chinese farms. Rivers stated that Fonterra will continue to rely on international suppliers for some components of its products, but that the company’s priority would now be to maximise the value of New Zealand milk.

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