That is the interesting thing about yesterday’s export figures – volume of dairy exports dropped 13% on a year ago. Is that all Fonterra hording?

“Yet, until Fonterra can separate returns to shareholders from milk supply, increased returns from non-NZ milk will only encourage shareholders to produce more milk in New Zealand and Fonterra will remain a commodity driven company”

Is value added provided further down the vertical chain? If so I don’t think there is a problem with farmers just producing – unless we influence the global price of milk. Then the issue isn’t value-added persee – but the fact that individual farmers don’t have the incentive to cut prices and increase returns as their is a “positive externality” to other farmers.

Do we influence the global price of milk? We are 35% of the export market, but we are a low cost provider and only produce 2% of world supply.

Fonterra, faced with falling prices and demand will want to decrease production oflow value dried commodity powders (produced in NZ) and focus on high value liquid consumer products (produced from fresh milk in market). However, their shareholders are trying to increase milk production and Fonterra will be faced with selling the last 10-20%? of commodity powders at a loss – dragging the return to farmers down further.

Andrew Ferrier has said that he wants to double the proportion of non-NZ milk that Fonterra processes to 50% of total supply. Yet, until Fonterra can separate returns to shareholders from milk supply, increased returns from non-NZ milk will only encourage shareholders to produce more milk in New Zealand and Fonterra will remain a commodity driven company.

I imagine it would be even worse now with the high number of recent of conversions to dairy farms. New farms won’t have the experience to produce as efficiently methinks

About time as well 🙂 – import costs had been dropping rapidly since late last year …