Profit share model mooted
The dairy industry needs to shift from its traditional business models to one that worked in close partnership with manufacturers, industry leader Justine Kidd says.
This new model is a shift from the co-operative or contract model where farmers think they need to own the value chain, to one that collaborates with manufacturers.
‘‘As farmers, I am putting the challenge out there to think differently about the value we bring to the table.’’
Speaking at the Dairy Women’s Network annual conference in Rotorua, the agribusiness chief executive for Theland Farm Group said it used this model for the China market.
This profit-share model differed from the traditional supermarket one, where a product is sold to the supermarket which then adds a margin and sells it.
‘‘We provide the product, they sell it and we share all of the profit.
‘‘That’s quite a disruptive model and it is being touted as one of the reasons for our rapid growth and our rapid expansion.’’
Theland produces 10 million kilograms of milk solids from 29 farms, milking 26,000 cows from Canterbury and the Central North Island annually.
It sells its products to 2600 supermarkets in China and a growing online and television shopping channel business.
The farmer’s customer was more globalised due to technology.
For Theland, its customer was the Chinese market, which saw the world differently, Kidd said.
‘‘That’s been a big learning for us.’’
Farmers were the brand of any dairy product and Theland wanted to be able to present happy people, happy cows, clean air and clean water.
‘‘Those are the big four drivers and we are actually selling a slice of New Zealand,’’ Kidd said.
‘‘As farmers we need to understand our value...so we are the brand of New Zealand milk, so what we do on our farms is what our product developers and our marketers are able to sell.’’
It was a value Theland took seriously.
Its Colins Road farm near Hamilton has a camera that sits near the dairy shed that can be controlled remotely and is equipped with a 360 degree turning circle, and a zoom.
‘‘Our marketing team would like this camera to be live 24/7 with consumer control.’’
In China, the globalisation of the Chinese food pallet was the biggest trend, along with brand credibility and the value of imported over local food.
Kidd said New Zealand had enormous credibility, reputation and lifestyle in the marketplace.
‘‘Our future is going to be increased segmentation of both our customers and we can meet that with increased special milks.’’
This could be grass fed only, A2, breed specific or high protein.
‘‘Those things are driven from the farm gate.
‘‘In New Zealand, we have an over capacity of commodity production and an under capacity for consumer production.’’
There had been huge changes in the dairy industry since 1988 and expansion was on the mindset of all dairy farmers when Kidd started in the industry in the 1990s.
‘‘We really were about getting bigger and milking more cows.
‘‘That’s how we thought as farmers.
‘‘We were on a trajectory around how do we grow our business and how do we make ourselves sustainable in the future and it was a scale question.’’
Today, that trajectory had changed to being more efficient and resource management, Kidd said.
‘‘We have a completely different environment that we are farming in.’’