10 minute read
Competition for milk heats up in Waikato
4FARMERS WEEKLY – farmersweekly.co.nz – August 22, 2022
News Competition for milk heats up in Waikato
Gerald Piddock gerald.piddock@globalhq.co.nz
A FLURRY of expansion by existing dairy companies and the arrival of new players means competition for milk in Waikato has never been stronger.
For years, farmers milking the region’s 3130 dairy herds had a choice of who to supply, Fonterra or Open Country Dairy.
In recent years, Synlait has expanded from the South Island to build a factory in North Waikato, Miraka established itself in 2010, and two years later Yashili constructed its factory in Pokeno.
Now there are two more players entering the market, with Happy Valley Nutritional and Olam both moving into South Waikato with factories in various stages of construction.
The region also faces competition from alternative land uses, including horticulture, sheep milking, urban development and forestry.
Dairy conversions have largely halted following tough new conditions brought in by the Waikato Regional Council.
This puts these companies in competition for a limited pool of suppliers.
The region’s biggest player, Fonterra, has had its total market share of suppliers across New Zealand fall from the 90%+ range in the 2000s to around 79%-80%.
Its group director of Farm Source, Richard Allen, said all companies are having to step up their game to retain suppliers.
“It’s extremely competitive. It’s 100% a supplier’s market,” Allen said.
“Farmers have a lot of choice in most regions with the exception of Northland.”
He said competition is a positive because it keeps Fonterra on its toes and obliges the cooperative to keep innovating. It should not be a guaranteed right that Fonterra gets milk in New Zealand, he said.
“We have to make sure that our farmers – because they have a lot of choice – that they are choosing to stay at the co-operative.
“I think that’s the place you always want to be in. To compel people to supply as a farmer without options is not a healthy thing for the industry either.”
This has changed how Fonterra pitches itself to suppliers as the industry evolves, with more companies having a presence in the country.
Farm Source, its retail arm, was created in response to the growing competition in 2013-2014, followed by My Milk.
Over the years there has been a lot of evolution in the way things are done in order to keep its suppliers, culminating last year in the work done around capital structure and flexible shareholding.
“We have had to evolve, we have had to innovate, and we will continue to have evolve and innovate,” Allen said.
The nature of competing interests has also changed. In the past it was rival dairy companies, but new land uses have emerged as dairying is no longer the only game in town.
“More and more, our biggest competition for the next 10-15 years is going to be land-use change. How do we evolve to manage that in a world where milk is flat at best and probably declining? There’s not a lot going in milk production’s favour when you look at all of the environmental and regulatory changes.
“We have to really think hard about the way in which we ensure that farmers see the co-operative as their best choice for their families and the industry.”
What attracts a farmer to a supplier can depend on their situation and background, and every farmer is unique.
Bankers, accountants and other advisers may also influence their decision.
“It will vary and obviously financials and performance are critical. There’s no one-size-fitsall,” Allen said.
He said Fonterra’s supplier market share has stabilised and he believes the co-operative is doing a good job of winning back as many suppliers as those who have left.
“It’s going to be an interesting dynamic with more capacity coming on-line,” he said.
However, he is confident Fonterra is doing all it can to maintain that supply.
“Sustainable milk production is going to be the name of the game over the next 10 years, and how do we support them with these changes around zero carbon and freshwater and give them the tools and services so they don’t have to reduce their milk production?”
Synlait declined to comment, but Laurie Margrain, chair of NZ’s second largest dairy company, Open Country Dairy, said dairy farmers now have more options around supplying than they have ever had. “There’s more competition – that’s good for the farmers and it makes sure that processors do their job to the maximum of their abilities,” he said.
Margrain warned, however, that while farmers have these options, the industry is also littered with failed processing companies. There are theoretically more options for farmers, but they may not necessarily be long-term options, he said.
Margrain said the changing landscape has not changed Open Country Dairy’s policies around attracting and retaining farmer-suppliers, emphasising its cashflow, product mix and transparency with farmers.
He said the change of supplier from one processor to another is not likely to be frequent.
“The relationship between supplier and processor is a hellishly important one in the context of their business, so I don’t think there will be a lot of volatility between people coming and going.
“It does rely on the processor doing what they say they are going to do, looking after their farmers and speaking up for their farmers and ensuring that farmer interests are well represented in how the processor operates.”
In July, Miraka chief executive Karl Gradon revealed the company was on the lookout for 40 more farmers to supply its factory at Mōkai, north of Taupō. Gradon said Miraka has been overwhelmed with inquiries.
Rather than trying to compete with companies such as Fonterra on a scale basis, Miraka uses its small size to establish an intimacy with its suppliers that larger companies may not be able to match.
“That’s the key, making your business supplier-centric and making those conversations about the customer’s needs and the values that we have and building a bridge between socially and environmentally aware consumers that are emerging, that gets what they do on farm.
“When you’re sitting around someone’s kitchen table as CEO, and that’s something we do very frequently, it becomes more of a connecting and compelling engagement,” he said.
Gradon refuses to refer to a supplier by their supply number. “The day our farmers become a number is the day we have lost it. I want to know every farmer’s name, their kid’s name, the sport their kids play and who we should be supporting in the community so we know who to sponsor.”
One of the newest players in the region is Singapore-based Olam Food Ingredients, busy constructing the global company’s factory near Tokoroa. Milk supply manager Paul Johnson said in a written statement that so far there has been good interest from farmers.
“We are on track for our plant to open in 2023 as planned. We are signing farmers up and we’re looking forward to working more closely with them,” Johnson said.
“We took a lot of time to listen to what farmers need, and our offer reflects that through pricing options that work for different farming styles and stages; simple and achievable incentives; worldclass technology tools; and unique services and benefits for helping on farm and in the community.”
GOT MILK? The arrival of new dairy players in Waikato and expansion by existing companies means a lot more competition for the milk produced by dairy farmers.
It’s 100% a supplier’s market. Farmers have a lot of choice in most regions with the exception of Northland.
Richard Allen Fonterra
NZPork’s own plans better but ‘painful’
Annette Scott annette.scott@globalhq.co.nz
PROPOSED industry changes in the way pigs are farmed are making better sense, but they will still mean a painful transition for pig farmers.
So says North Canterbury commercial pig farmer Sean Molloy, who said what the industry is proposing is way more on the mark than the unworkable plans the National Animal Welfare Advisory Committee (NZWAC) signalled to the government “but still challenging financially and management-wise”.
The New Zealand pork sector recently unveiled alternative proposals to improve pig welfare that represent the industry’s most significant changes in a generation.
NZPork outlined the proposed alternative approach in its submission on the Proposed Code of Welfare for Pigs and Associated Regulations, urging the government to work with the pig-farming sector to confirm the industry-supported alternative standards and agree to an implementation plan that is achievable for pig farmers while ensuring their farms remain financially viable.
The proposed alternatives include reducing the maximum time farrowing crates can be used from the current 33 days to no more than seven, increasing the minimum space allowance for grower pigs, and eliminating the use of mating stalls for housing sows.
Molloy said the industry’s proposal around space allowance makes sense, but the farrowing is a double-edge sword.
“It’s early days, the technology is still being developed, the rest of the world is not using it yet.
“There will be a lot of cost and a lot to learn, it will be a painful transition both in management and financially.
“It will be like a paradigm shift, a step change that’s for sure,” Molloy said.
The changes would place NZ’s standards beyond those required in the United Kingdom, European Union, United States, Canada, Australia and China, all of which collectively produce the majority of the world’s pork and supply most of NZ’s imported pork.
“It will make us less competitive on the global scene,” Molloy said.
“We will be looking for government support by making countries exporting pork to NZ meet the same welfare standards.
“We are happy to change but on a level playing field. All we are asking for is fair and equal standards and regulations, otherwise we are severely disadvantaged,” Molloy said.
NZPork chief executive Brent Kleiss said the industry supports the need for change but the proposals released by NAWAC in its Draft Code of Welfare for pigs would have unintended negative animal welfare outcomes and drive many pig farmers out of business.
“While NAWAC is an expert committee, it has no expertise or understanding of pig farming,” Kleiss said.
He said the sector has worked with technical advisors to develop alternative proposals based on a rigorous in-depth review of contemporary pig welfare science and good practice.
They are substantial and meaningful, and collectively demonstrate welfare standards that go beyond all major porkproducing countries.
The proposals include ensuring all sows are provided with nesting material before farrowing. The change from up to 33 days in the farrowing crates to no more than seven are to balance sow behavioural needs with piglet protection.
The minimum space allowance for growing pigs would be increased by 13%.
The proposals seek to retain an outcome-based approach to deciding when piglets should be weaned, which would better cater for the welfare needs of both sows and piglets, rather than adopting a prescribed and inflexible minimum weaning age as is proposed by NAWAC.
Kleiss acknowledged the alternative proposals would still be costly to implement.
NZPork believes the costs of NAWAC’s proposals are likely to be as much as $10,000-$20,000 per sow on a standard farrow to finish operation, the equivalent of more than 20 years’ profit.
“Our own industry proposals will still need government support along with adequate time to implement change.
“The alternatives we propose are based on sound animal welfare science and are more achievable to implement.”
NZPork is urging the government to require imported pork to be held to the same higher welfare standards.
The changes proposed by NAWAC are not supported by international pig welfare science and they would lead to additional piglet deaths and pig farms shutting down.
This would make New Zealanders rely on even greater volumes of imported pork produced using practices that are illegal in NZ, Kleiss said.
Sean Molloy Pig farmer
FAIR GO: North Canterbury pig farmer Sean Molloy said farmers are happy to change, all they are asking for is a level playing field.
DOCKING TIME?
GET CENTRE STRAND
