The answer, he told vegetable growers, came down to industry consolidation and scale, deregulation and market opening, and innovation to market.
Fonterra had grown from a turnover in its first year of $9 billion but this year that would be around $20b. There were concerns before the co-op’s formation that it would be heavily regulated, but during the transition it managed to escape government intervention. Elsewhere in the world with trade deals and deregulation of other dairy industries such as in Australia, the regulators’ role was reduced, “a big deal”.
Turner said it was a concern there was now so much foreign investment in NZ dairy processing.
“I don’t understand the Government’s enthusiasm,” he said. “Wouldn’t you want New Zealanders to share that?”
But the co-op would “put up a good fight’ in its aim of increasing its share of national milk flows from the present late 80%.
While Fonterra’s share structure was seen by some as an obstacle, there was a high risk in producers being able to switch supply agreements easily.
“It’s not a recipe for success in the meat industry.”
The example of innovation he used was GlobalDairyTrade (GDT), Fonterra’s online auction system which he described as “a real revolution in thinking”. Fonterra had faced a lot of internal opposition at the idea of exposing itself to the market but now the auction system had 700 bidders from 90 countries with seven sellers from six countries. Forty products were offered across eight product groups with US$400m of cheese being sold through the system every month.
The major buyers came from Asia, with 26%, Southeast Asia and Oceania with 20%, and Europe and Africa with 13% each. The Middle East accounted for 11% of purchases, central and Southern America 9%, and North America 8%.
“GDT is a fantastic tool set to address volatility,” Turner said.
There was now an accurate measure of the real value of milk.
Asked what the catalyst was to go ahead with GDT, he said big US multinationals had told Fonterra “you’re in the Dark Ages – do it or someone else will do it to you”.
The co-op offered a range of risk exposures such as long-term fixed price contracts, a physical price collar and a forward price curve, which allowed customers to choose from a menu of future prices each month. Many customers chose a mix of the three with dairy futures now offering another option in an increasingly sophisticated market.
