Posts by Farmer Green
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And then the further question as to why , if Fonterra is not disposed to do added-value dairy, then why is nobody else getting off the ground:-
Further comment at NBR . (I've replaced a few pronouns with nouns to make the meaning clearer.)
#8 by Farmer Brown
"intelligent, effective regulation/competition " .Yes of course : the business environment should be designed to maximise the return to N.Z. Inc.
I am sure that Jim Sutton had this foremost in his mind when the DIRA was drafted.
He probably could not have envisaged the rort that is the Fonterra Milk Price Manual, which dictated that the milk being poured into the buttermilk lake last season, had nearly the same value as milk produced in the winter.
This pricing of dumped milk is , in terms of an efficient and transparent market , nonsense . . . . of course.Imagine a solely added-value dairy company starting up today, targeting that same affluent Asian consumer market, in which Dairy Australia believes it has a competitive advantage over NZ.
Australia believes , probably correctly, that their advantage derives from their flat milk production curve, which is itself a consequence of their relatively larger domestic market.
So expanding to become the preferred year round fresh/cultured/ luxury dairy supplier to Asia should be merely a question of growing in size , and continuing to pay a lower price to farmers for surplus milk which must go into commodities ( in OZ they call this T2 milk).A NZ added-value dairy company would have to contract its suppliers to calve in the Autumn , and milk through the winter,.
Because the cost of production will be higher, these suppliers will probably need a price around $10-12/Kg M.S. as a minimum. No problem there.Assuming that the autumn -calving dairy farmers wanted to remain seasonal, they would dry off their cows at , or slightly after, the current seasonal peak i.e.November December January.
During this summer dry period, the added -value dairy company will, initially , need to buy milk from Fonterra under the DIRA regulations .
But the added-value company will also need to buy a lot of milk in September and October , when Fonterra has milk coming out its ears ; milk that Fonterra will make into its lowest -value commodity products . . . . or milk lakes.
The question is -what price should the added-value company have to pay Fonterra for that peak milk?
The answer to that question , in a true competitive environment, would be - NOT the price that the Fonterra Milk Price Manual (which Fonterra DIDN'T follow) would dictate.
See the problem?
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Hard News: Five further thoughts, in reply to Sacha,
Yet we’re exporting dried powder. How come?
Part of the reason is here (comment at NBR) :-
Fonterra is a very well run company , which responds rationally to the conditions in which it operates.
Those conditions amount to a protected environment.The two key components of that protected environment are the DIRA and the Fonterra Milk Price Manual.
It is perfectly evident that the sole purpose of these two documents, one of them a government statute that Jim Sutton was "heavied " into having enacted, and the other a blatant piece of nonsense designed by Fonterra to make it very difficult for competition to get off the ground, is to prevent competition and to maintain a virtual monopoly on the use of the NZ milk supply.
The reason that Fonterra needs to have that monopoly, is because its business model is 'throughput -driven". We don't need to go further into that.There is a third component to the protection of the industry , and that is the initial exemption of agriculture from the provisions of the RMA , and the inordinately long time that it is taking to make the dairy industry compliant.
It is simply a fact that the spring-calving, seasonal dairy is the most environmentally damaging model that we could design.
The agronomic reasons for this are well known; again we don't need to go into it here.It should be obvious that the way the bulk of the NZ dairy industry, i.e. Fonterra , is operating is a disaster , environmentally , economically and socially, for the whole country, but it is a perfectly rational response to the policy settings under which Fonterra operates.
It is entirely the fault of successive governments , through statute , and the failure of a powerless Commerce Commission to facilitate competition , that the dairy farmers can continue to operate in this way , to the national detriment.
Don't blame Fonterra ; they have been permitted to get away with it.
Don't worry about the dairy farmers; most will be fine.
It's NZ that we need to be concerned about.
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Hard News: Five further thoughts, in reply to Alfie,
I’m not surer how much milk NZ produces at the moment,
About 15 billion litres / annum . . . a drop in the bucket on the world stage. We only have 4 million cows.
Last time I looked there were about 20 million cows in India.ETA : 45 million cows in India now ; 260 million in the world.
You can see why our best strategy WOULD BE to be the "top-shelf" producer. -
Hard News: Five further thoughts, in reply to Alfie,
Can you really milk a cow four times a day? How sustainable is that in the long term?
Sustainable for the cow? You can have a cow producing 5 times the volume that a cow in NZ produces. Some go even higher (100 litres /day) using hormones.. You will milk her at least three times. The cow , in a robot-milking situation, may choose 4 milkings /24 hours.
The cow will likely never conceive again , and will, at least in the U.S. situation die of progressive organ failure, at the age of 4-5 years , having milked for 500-600 days.
I'm not saying Fonterra is doing this ;; I wouldn't know.
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Hard News: The humanity, in reply to tussock,
Well done tussock. I've been closely associated with retail for about 25 years, and you nailed it.
But you missed one . . . I , as the wholesaler , am not paid by the supermarkets for "unsold" goods for which they claim (unsubstantiated and unverified ) a credit, on the basis of "damage" - i.e. a staff member "dumped " it. Automatically deducted from my remittance . . . no questions.
So I build that into the price as well.An item that I could sell you, in say a pack of ten, with a shelf -life of 4 weeks, for a price/unit of $4.50 delivered , will cost you about $7 - $8 /unit in your friendly supermarket.
On the milk . . . there are still a small number of farmers doing winter milk for the fresh market. They do get a small premium.
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Hard News: Five further thoughts, in reply to Jack Harrison,
It will just keep pulling people until
. . . local body rates in Auckland rise to a level sufficient to provide that every waterbody/waterway is swimmable , and the only discharge to water from Auckland is . . . water.
That would be fair wouldn't it?
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Friday Flash from Federated farmers .
Enjoy. :-)http://www.fedfarm.org.nz/publications/opinion-editorials/article.asp?id=1847#.VCT5kucWE7A
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Here we go. What can one say?
http://www.nbr.co.nz/article/irrigators-rapt-green-light-irrigation-schemes-ch-162918
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Hard News: The humanity, in reply to Paul Campbell,
busy trashing its hotel room in a drug fueled haze”
Nah , it's just having an acute episode . The problem is chronic , and it was there before Fonterra was formed .
In fact the poor sustainability of the two big co-operatives , NZCDC and Kiwi Co-op was the stated reason for forming Fonterra .
It was just a piece of thuggery (the TUI Co-op farmers voted against it) that the more sustainable dairy co-op, TUI Dairy Co , which was in a better position to pursue added-value, had to be sacrificed to allow the two big boys to head off down their chosen dead-end road.But ultimately it still comes back to the fact that the price paid to farmers for milk should be different in every month of the year , thus reflecting its true value.
The NZ Town Milk Industry, which had three price periods , and the ability to alter price on a monthly basis to reflect supply/demand conditions, was the closest that we ever got in this country.
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Hard News: The humanity, in reply to Ian Dalziel,
Never underestimate the power of denial.
She's a big river.