Fonterra: New Zealand's milk lake no longer growing

Rivers hinted at this New Zealand media. The favorable climate, the presence of dairy giant Fonterra and developments in the dairy market with China as a more important buyer were the right ingredients for a rapidly expanding milk pool. Milk production in New Zealand reached a record level in the 2020/2021 season. Moreover, milk prices have been at a relatively high level in recent times. A combination of a good milking season with good prices is rare.

However, the mood in the New Zealand dairy sector is not overly positive. Many companies need the high yields to reduce their debt burden and the impact of greenhouse gas emissions from dairy farming on the environment is increasingly in the spotlight. It is feared that tackling the latter problem will lead to higher costs. Rivers warns that this will lead to growth coming to a standstill.

Regulations limit development
The CFO of the dairy cooperative currently no longer sees a strong increase in milk production. Regulations limit the amount of land that dairy farming can use. Rivers: "We no longer see new land being used for dairy farming, which is a real difference from a few years ago." In some areas there may even be a decline in the total amount of land used for dairy farming: "Farmers will use plots for forestry and horticulture, house construction or even solar panels."

Although rising production figures per cow may still lead to modest production growth, he predicts that the strong growth the country has seen in the past 10 years is a thing of the past. Rivers considers it most likely a stable production or even a slight decline.

Global dairy demand must support result development
In order to further develop the company's financial performance, Fonterra must respond well to the rising global demand for dairy. Rivers predicts annual demand growth of between 2% and 3%. According to the director, the company must extract even more value from every liter of available milk. An opportunity for the company to distinguish itself is the relatively favorable total emissions per kilo of milk produced compared to competitors from other countries.

Rivers: "For the first time in history, we may have some choice in determining who we sell our products to. We may be able to choose customers who really appreciate sustainability and pay for it. That is a sustainable way of producing dairy." .

Possible new revenue models
Other developments that need to be focused on are creating more nutritional value from the existing amount of available milk and possibly also plant-based milk: "If our members decide to use agricultural land differently (raw materials for plant-based milk), Fonterra may also be able to play a significant role in this market. go play." Nevertheless, the director expects that cow's milk will still be Fonterra's core business in 30 years.

Analysts from consultancy giant KPMG also expect that there will be no significant growth in milk production in the next 20 years. Massive and large-scale dairy farms are becoming less common and more focus is being placed on a broader range of export products with greater added value, including plant-based alternatives.