Comment: The dietary battle between dairy fat and protein continues to be waged but the playing field is changing farmers' breeding decisions and the dairy cow of the future, writes LIC General Manager of NZ Markets Malcolm Ellis.
Astute chefs have known for years that fat is good for flavour in our food, but now we're also seeing fat as beneficial from a dietary perspective, with the fad swinging away from low fat or no fat (and high carb) to an appreciation for good fat in our diets.
We've come a long way from 10 to 15 years ago where we wondered what to do with fat.
And while it used to be a near exclusive protein story, there is now absolute recognition of the value of both dairy protein and milk fat - and that has to be twice as good a story for the dairy industry.
A decade ago, protein was consistently valued at roughly three times the value of fat and this value was very much reflected in farmer's milk cheques.
It took some time to drift slowly towards protein still being twice the value of fat. Then, very sharply, we saw the value of fat move past parity to being valued significantly higher than protein.
The advantage towards fat peaked on three notable occasions between the middle of 2017 and mid-2019. Once the value of fat peaked, there was always going to be a level of consumer resistance to pricing and levelling off of fat relative to protein, to bring us back to a more comparative position.
The expectation is that we have now reached a new norm of fat-protein parity. Today we observe the Covid-19 impact on the food service sector which has the value of fat under some pressure, however the medium horizon continues to be one of parity.
Two factors are driving this shift in demand at a macro level.
Firstly, we have seen a genuine consumer and dietary shift globally towards thinking that maybe fat is not the enemy it was once perceived to be.
Secondly - where taste becomes a genuine consumer requirement - on the surface of it we get flavour from sweetness, but with sugar considered the new enemy, there's been a resurgence in using fat to meet that same taste requirement.
We are seeing these two factors working nicely in tandem i.e. if fat is not all that bad, and if sugar is being frowned upon, then fat has an important role to play for great tasting food.
As a result, we have seen large global organisations shifting to fat-based products in their restaurant chains.
When this decision was made globally by one well-known fast food company, its fat requirement alone was greater than the fat levels produced from the New Zealand dairy industry in a year.
So, we're not just talking about the everyday family making different purchasing decisions as a household; it's the big players who are driving this increased demand for dairy fat.
When you think about restaurant trade and consumption of dairy, the product has to be pulled from the shelf more regularly when both fat and protein are in high demand, which is good news for the dairy industry.
LIC General Manager of NZ Markets Malcolm Ellis. Photo / Supplied
It means our farmers are now being paid collectively more for fat compared to protein, given that protein and fat have reached comparative value and that the average New Zealand dairy cow produces more fat than protein in a given litre of milk.
As a result of coming to the realisation that fat is contributing positively to milk revenue, our farmers are engaging in different conversations on-farm and asking different questions around the type of cow they want to breed for the future of their farming business.
With the demand for fat and protein levelling up, LIC is seeing a real shift in buying behaviour across our Genetics product range.
LIC operates an internal selection index, which is highly correlated to the National Breeding Objective and Breeding Worth (BW) Index but importantly, it strives to anticipate where the future of the industry is heading.
Our internal index gives us the ability to allocate weightings differently across specific traits with a view to the "cow of tomorrow", and we've been weighting more favourably to fat relative to protein for a period of time now.
More specifically, LIC has been breeding and proving bulls within its breeding scheme over the past five years anticipating this re-weighting of fat; which means the bulls in our pipeline are more suited to today's payment system than they would have been if taken from the values reflected in the national BW Index over this period.
This is the case for all three breeds – New Zealand Holstein-Friesian, Jersey and KiwiCross.
Inside the New Zealand stable, recently we have seen a greater interest in Jersey and KiwiCross because farmers consider these to be the breeds that are more favourable with fat production.
Much of the Jersey interest is to reposition the Crossbred cow in New Zealand to have a more balanced breed make-up between Jersey and Holstein-Friesian following a former period of the KiwiCross tending to the Holstein-Friesian end of the spectrum.
For those keen on Holstein-Friesian, today there is also an even stronger case for New Zealand Holstein-Friesian compared to international Holstein-Friesian genetics.
This is because New Zealand Holstein-Friesian is more favourable in fat-relative-to-protein levels within the breed, and produce comparatively less volume. This makes their milk a lot more valuable, (compared to that extracted from international Holstein-Friesian genetics) within today's New Zealand milk payment dynamic of fat plus protein less a volume charge.
For Kiwi farmers making breeding decisions, it's about taking a more balanced view of the components of a litre of milk, in order to meet the increasing global demand for both dairy fat and protein.
LIC's herd testing services are also helping farmers to understand more about the componentry of the milk they produce.
More broadly than the fat versus protein debate, forecasts for global milk and dairy product consumption continue to increase in both developed and developing countries.
We have every reason to be extremely proud as New Zealanders for the way the dairy industry has responded to the recent challenges caused by the impact of Covid-19.
What we have witnessed globally is that dairy has proven to be extremely resilient through this period of uncertainty, and is clearly seen as a stable commodity and a source of great nutrition.
It's clear that demand for dairy fat and protein will be resilient no matter what gets thrown at humankind.
• Malcolm Ellis is General Manager of NZ Markets for farmer-owned agritech and herd improvement co-operative LIC.
