He says the industry needs to reduce its milk volumes and corner the value added dairy market.
The logic is simple. If less milk is produced over the next 20 years, it would give New Zealand dairy companies more leverage to what market that product ends up.
The companies can then push to sell the product in the value added market which is where we need to be if we are going to grapple with the changes taking place around world food production and the emergence of lab-grown produce.
Proudfoot is convinced that growing more volume is not the answer to growing more value from our dairy products.
Producing less milk means a drop in cow numbers which would improve the industry’s environmental sustainability and give it a better story to tell our overseas customers.
It sounds pretty simple in theory, but it won’t be without its challenges. Proudfoot himself acknowledges that.
For one thing, dairy cows are not like water faucets that can easily be turned on and off.
Over the years, the industry has worked hard using selective breeding to produce cows that are efficient at turning grass into large producers of milk. The industry must use these types of cows if it is to go down this path.
More significantly, it would also mean creating a new payment system for farmers that is not based solely on volume.
Some of the smaller companies are leading the way on this with Synlait and Miraka establishing incentive schemes for their suppliers based on strong environmental credentials. It would require some serious thinking if this was to be expanded industry-wide.
At Fonterra, any such overhaul would probably require approval by 75 per cent of its 10,500 farmer-shareholders.
Its Trading Among Farmers scheme took years to eventually get over the line and designing a system that was fair, rewarded farmers who invest in environmental sustainability while being flexible and practical enough to consider the different farm systems that exist across the country will be a massive challenge.
Certain politicians love to waffle on about the value added market and how agriculture is stuck in the commodity cycle. But I wonder if any of them really know that market’s difficulties and complexities.
There is a reason why companies such as Fonterra build big milk powder dryers. Converting liquid milk to powder is simple, cheap and there is a hungry market for this product in Asia.
Entering the value-added market is much harder.
One person who knows better than anybody is former Tatua chief executive Paul McGilvary. He said last year that Tatua was still learning from some of its Japanese customers who it had a 40-year relationship with.
Such relationships were critical to succeeding in this market and they took time to develop.
Proudfoot is absolutely right about one thing. World food production is changing with the emergence of lab grown meat and milk. The price to produce this will eventually come down as technology improves.
While it will start off as a high end product, it will eventually become a commodity used to feed a growing world. That means New Zealand has to move into the value added market and pin its colours to its environmental credentials.
Keeping the status quo is not an option.
Source: Stuff
Link: http://www.stuff.co.nz/business/farming/agribusiness/90117484/value-added-the-right-move-but-it-will-come-with-challenges