Fonterra chief sets out scary vision

Andrew Ferrier

Fonterra chief executive Andrew Ferrier yesterday told the country's dairy farmers that the co-operative would be "big in the world" in 15 years' time - with or without their milk.

Speaking at the dairy industry's large herd conference in Christchurch, Ferrier tackled the question of how to sustain a domestic milk supply big enough for the long-term needs of New Zealand's biggest business.

Ferrier presented one gloomy scenario for 2020.

That was of Fonterra as a global dairy business but with more international milk suppliers than suppliers from New Zealand.

He painted farmers a scary picture of urban sprawl and demand for lifestyle blocks consuming farmland, strict allocations of water, soaring energy costs, and onerous resource consents for all aspects of dairying, including fertiliser use.

"Our shareholder base will be shrinking, our milk growth diminishing."

There would be fewer, larger herds, but "out of control" land prices and costs would severely curb production growth.

"But make no mistake. Fonterra will still be 'big in the world'. But from a different base.

"While we will still be exporting 95 per cent of production from New Zealand that production will be a lot less than today as milk supply drops.

"Instead the bulk of our supply will come from a new breed of cost efficient productive farmers... around the world."

"We will be growing our farmers' wealth, but instead of that wealth flowing into your pockets, and the New Zealand economy, it will be spread around the world."

He added: "Dairy will have a precarious hold on the lowest rungs of New Zealand's top 10 exports ladder."

The other scenario was for farmers to have a say in their destiny by tackling the issue of supply.

Farmers' decision in 2001 to create Fonterra, which controls 95 per cent of the country's raw milk supply, had come from a long-term view, Ferrier said.

"We need to make it [a long-term view] again, agree on the constraints we see on milk growth and develop a plan of action.

"In other words we have to recommit to the co-operative principles and the collective power that have underpinned our growth."

Fonterra's strategies ensured it would be "big in the world" in 2020, said Ferrier.

"There is no doubt in my mind about that. The question is, do we do it with you, or without you?"

Ferrier, however, did manage to offer a bit of sunshine.

Demand for high quality, low-cost dairy products would grow markedly by 2020, he said.

Fonterra farmers had to unite, and manage milk growth, despite challenges such as water shortages and farming costs, Ferrier said.