Thursday, March 28, 2024

Dairy demand set to stay

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Strong demand for dairy looks set to continue as the global economy resumes its rebound from the effects of the covid-19 pandemic, Fonterra chief operating officer Fraser Whineray says. That demand included the co-operative’s China market, which took about one-third of its milksolids, he told about 100 farmers at the Smaller Milk and Supply Herds group’s conference at Lake Karapiro, near Cambridge.
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“The bits that we’re attached to are doing pretty well economically,” Whineray said.

This was aided by the Chinese government, which had recommended children, elderly and pregnant women increase their daily dairy consumption from 300-500g, as a way of increasing their daily health during the covid-19 pandemic.

“That’s only 200g but there’s lots of people,” he said.

Yoghurts and probiotic products were a key component of that, with a six-fold increase of probiotic sales in China last year.

“That might have been only 3.5 tonnes, but when those things sell for $3 million a tonne, it does make a difference,” he said.

He says kiwifruit’s vitamin C qualities saw it in a similar position also with Chinese consumers.

The pandemic tightened up the shipping supply chain, turning it into a maritime traffic jam as more people stayed home and spent their money on consumer items.

“It’s all happening in this global simultaneous splurge and that’s put shipping well beyond what its capacity is,” he said.

It had pushed the spot price costs of sending items from China to the US and China to Europe up six times.

Fortunately, he says, Fonterra was part of a group of New Zealand exporters that shipped one-third of the country’s container traffic through global shipping giant Maersk.

“That supply chain won’t relieve for a while – what it needs is for people to stop spending money on goods,” he said.

The pandemic still presented both risks and opportunities for the dairy industry, reflected in the strong opening forecast for the new season, generating about $14.5 billion across the entire dairy sector.

“It’s great to see that income coming in for New Zealand,” he said.

He did caution farmers, saying the season was long and conditions can vary.

“There’s good strong demand, even for the humble whole milk powder (WMP),” he said.

He rejected claims by people that it was a commodity.

“Less than 2% of the world’s milk is in WMP. It is actually a stunning niche, which New Zealand owns. It involves a lot of intellectual property that is still being developed and it is very difficult for our customers to replicate that at scale,” he said.

NZ’s WMP flavour profile gave it a unique point of difference because of the country’s pasture-based farming system. He says that and its lower carbon footprint gave it a differentiation.

Increasingly, large customers were questioning the carbon footprint of dairy products and its animal welfare credentials. Farm environmental plans (FEPs) and its co-operative difference milk price payments helped Fonterra answer those questions.

“That’s why you’ll see New Zealand skim at $300 a tonne higher than European skim even when you put them through the same lab, they test the same,” he said.

“That’s almost 10% – why would they pay that premium? A lot of it is to do what is happening here and our low carbon position.”

NZ dairy production and agriculture are revered by many of Fonterra’s Asian customers and saw it as a very pure place to source high-quality nutrition from and was highly trusted, thanks to 50 years of Anchor billboards.

Whineray believed the image these people had of NZ was based on those billboards.

“When they did come here, they couldn’t believe the poster was real,” he said.

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