Expert calls for less milk, more dairy innovation

A dairy industry producing less milk is needed in a major overhaul so it could move away from commodities and corner value added markets, says agribusiness expert Ian Proudfoot.

Managing New Zealand’s milk supply to grow value and not volume and abolishing the Dairy Industry Restructuring Act (DIRA) should be part of the overhaul, said Proudfoot, KPMG’s global head of agribusiness.

There was an increasing acceptance that simply growing more volume was not the answer to growing more value from agricultural products, Proudfoot said.

‘‘My view is that over the next 15-20 years we need to manage the amount of milk produced in New Zealand.

‘‘If we produce half as much milk, the huge increase in optionality around how we would use that milk would allow us to create a significantly higher mount of value from those products.’’

That would be challenging because of how dairy companies collected and processed milk based on a seasonal supply curve.

The production curve resulted in large volumes of milk becoming available in October-November and companies did not have the capability to turn all of the milk into a value-added product.

Capturing that value added market meant a shift from measuring dairying’s success according to growth in milk volume and paying farmers according to their production.

Traditionally, farmers had been paid the same regardless of their milk quality. In recent years, companies including Synalit and Miraka have created incentive schemes for farmers to add value to their milk based around strong environmental credentials, he said.

Farmers should examine the dairy value chain and decide if they were happy with their onfarm returns.

They needed to be part of the whole story, not just until the product reached the farm gate.

‘‘If you are not comfortable with your value chain, then you need to start asking some questions about how you are going to change that value chain you are sitting in.’’

Miraka was an example where a group of farmers did just that.

This strategy would help stop the constant attacks by groups such as Safe, whose chief executive Jasmijn de Boo recently published a column attacking the dairy industry in the online newspaper The Huffington Post.

The criticism would keep occurring until the dairy industry changed, Proudfoot said.

Scrapping DIRA was necessary because it created incentives for the industry to push for dairy farming in environmentally unsustainable areas.

This further fuelled questions around the industry’s environmental record.

Proudfoot believed there was now adequate competition in the dairy industry.

Competing companies were putting compelling offers in front of farmers, which had resulted in a gradual reduction in Fonterra’s milk supply.

There needed to be a different conversation around dairy innovation and its funding.

New Zealand spent 1 per cent or less of global spending on innovation, which meant New Zealand would have 1 per cent of the good ideas.

‘‘If we are going to be on the leading edge, we need to have 100 per cent of the good ideas,’’ , Proudfoot said.

Companies needed to be very close to their customers so they could understand and work through any problems. Delivering a successful product allowed companies to be embedded in a customer’s buying habits.

An exporting company’s market obligations would also evolve as it moved towards more value added products.

‘‘But they are going to change anyway because many of the markets we are playing in at the moment will either not exist or would be a significantly lower value market,’’ said Proudfoot.

That negated fears of losing market share because New Zealand would be re-positioned in the higher value market based around a story of its environmental sustainability.

Making such a change was difficult and risky, but the window to make this change was narrowing as the world evolved.

‘‘Potently, we’re getting further and further behind if we don’t start to change.

‘‘Every day that we don’t start evolving our future is a day that it gets harder to have the future we all want to have.’’