Two new dairy plants are due to open in August and if their operators attract their targeted milk supply Fonterra’s market share next season will fall from 82% to 80%.
The plants are industry number two Open Country’s fourth location, at Horotiu, in northern Waikato, and newcomer Mataura Valley Milk, in Southland.
Horotiu can take 250 million litres or 20m kilograms of milksolids a year while Mataura wants 30 to 45 start-up supply farms or 7m to 10m kilograms of milksolids.
Fonterra’s Global Dairy Update for February said its milk collection in the eight months to the end of January was 1036m kilograms of milksolids and that it was down 2% this season.
January was particularly tough for its farmers, down 8% for the month, minus 11% in the North Island and minus 5% in the South Island.
The Dairy Companies Association consolidated figures for the season were a fall of 0.8% compared with the previous corresponding period and it reported January collections were down 7.4%.
In the season to date Fonterra had collected 1036m kilograms or 82% of the national production of 1262m kilos.
But Fonterra does include in its figures milk collected to fill contracts with other processors, mainly Goodman Fielder.
The trend towards 80% market share for Fonterra has already prompted legislative action by Agriculture Minister Damien O’Connor.
He ensured the efficiency and contestability provisions of the Dairy Industry Restructuring Act (DIRA) will not expire in the South Island on May 31.
At the same time he flagged a DIRA review to include topics like environmental impact, land use and Fonterra’s obligation to collect.
Industry analyst Geoff Taylor, of TDB Advisory in Wellington, thought one outcome could be cancelling Fonterra’s reference milk price for the industry, at which smaller processors can buy.
“It would then be free to defend its market share using milk price.
“I think it is evident that sufficient market competition now exists for such legislative moves.”
His consultancy was about to publish another report on performance of New Zealand milk companies, including Fonterra, and one of the conclusions is so-called overcapacity in the dairy industry is manageable.
It is nothing like the meat industry, he said.
Mataura Valley has already offered a premium milk price for new suppliers, consisting of 20c/kg premium and incentives based on milk quality and onfarm performance up to 35.5c.
General manager Bernard May said he is confident it will be the best payment structure in the South Island.
Mataura will match the best milk price in Southland then offer premiums on top.
The company will finalise a supply share standard in May, likely to be about $2/kg, securing up to 20% of the ownership for farmers, versus 80% by the China Animal Husbandry Group, a state-owned enterprise.
NZ farmers are realising the need to secure premium value from their milk.
“It’s a one-off opportunity to be part of a company producing premium nutritional products for a rapidly growing global market.”
Milk is just one of the ingredients in a nutritional formula and as part of a much higher-value protein supply chain Mataura Valley can better reward its supplier shareholders.
He referenced the Southern Pastures South Island farms switch from Fonterra to Westland Milk products and the recent announcement by Synlait it will build a plant in South Auckland for the production of nutritional powders.
When announcing the new plant intention, Synlait managing director John Penno said Waikato is the least-competitive region of the country, where Fonterra has a stronghold of eight plants.
More competition at the farmgate will drive up milk payouts for farmers, he said.
