New Zealand’s dairy industry is in a high risk position as Chinese demand for whole milk powder stalls and there is no quick fix, Keith Woodford says.
China is the largest importer of whole milk powder (WMP) from New Zealand, buying about 420,000 tonnes of the product each year, Woodford told about 50 people at a Rural Business Network (RBN) meeting in Hawera.
However, that figure was significantly lower than the 700,000 tonnes exported to China just a few years ago and had plateaued, he said.
“Maybe some other opportunities will open up for WMP, such as Iran, but we’ve pushed ourselves up one particular pathway with our emphasis on WMP and as it stands we are very, very dependent on that one market.
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“I think we’re in a high risk position. I don’t try and blame anyone for us having gone down this path but I don’t think that’s where we want to be over the next 20 or 30 years,” Woodford said.
“We’ve got to start thinking about doing something different.”
A farm consultant and former agribusiness professor at Lincoln University, Woodford said history showed WMP was popular in developing countries but once they had their logistics, quality assurance and refrigeration systems set up, it became less important.
“We are relying on China taking a different course of development than any other country and retaining its emphasis on whole milk powder.”
New Zealand’s whole dairy industry had been structured around WMP and as Chinese demand for the product stalled, the industry was increasingly at risk, he said.
“Whole milk powder has been profitable and when you’re in seasonal production like we are, it’s the easiest thing to do with your milk – the cheapest way to process it is to turn it into whole milk powder,” he said.
Chinese imports of other dairy products had increased and value-added products had huge growth potential, Woodford said.
“It’s still a small importer of cheese, but it’s doubled. It’s still a small importer of butter, but it’s doubled. It’s the world’s biggest importer of infant formula and it’s doubled.”
Responding to the shift in demand, Canterbury-based processing company Synlait – originally established as a producer of premium WMP – was moving as fast as it could towards being an infant formula producer, Woodford said.
“The value of infant formula as it goes across the border to China is about six times the value of WMP. That’s not the retail value, which is different again, that’s just the value at the border.”
But shifting the industry’s focus to value-added products would not be easy, Woodford warned.
“It’s a long journey and it has challenges of its own. You’re really constrained by our seasonal production curve and to be successful in value-add, you need to be producing all year,” he said.
“There are big environmental issues around nitrogen leaching and water quality and we have lost our social licence from the rest of the community.
“We need to do something about winter leaching or we’re not going to get that licence back.”
Lessons could be learned from Europe and North America, where hybrid operations combining grazing and barn systems allowed farmers to supply milk year-round, reduce their environmental impact and improve public perception of the industry.
“The Dutch community in particular is very happy with what their farmers are doing. They don’t like cows being inside all the time, they like to see the cows outside, not because of better milk but because they believe that’s what cows should do,” Woodford said.
“They have got a social licence from the community that we don’t have.”
Dutch farmers who had their cows outside for at least six hours per day for at least 120 days of the year received a price premium of 1.5 euros (NZ$2.35) per litre from their processor, about 5 per cent above the standard price.
“But that grass-fed milk actually just goes in with all the other milk, it’s not separated out,” Woodford said.
“The premium isn’t paid because there is some health benefit, it’s so they can have the nice packaging and tell the good stories – the happy cow stories – which the consumer then buys into.”