Fonterra boss warns farmers of 'volatile world'

Sir Henry van der Heyden said dairy farmers must focus on their strength of growing grass and turning it into milk more efficiently than anyone else. Photo / Kenny Rodger

The global outlook for dairy remains strong, but New Zealand dairy farmers must shore up their businesses against possible future volatility, Fonterra chairman Sir Henry van der Heyden said.

"Our future as dairy farmers in New Zealand, our international competitiveness and this country's future - it all depends on how we respond to the more volatile markets and ensure we make the most of our unique advantage in pastoral dairy farming," he told DairyNZ's Towards 2020 farmers' forum at Mystery Creek today.

Sir van der Heyden said farmers must concentrate on the fundamentals of pasture-based systems which offered a competitive advantage over other producers.

"There are two key threats to New Zealand dairy farmers. One is other people being able to grow grass and produce milk more cheaply than we can. The other risk is if we get too far down the path of adopting farming practices that make us uncompetitive."

Supplements and imported feeds had their place on New Zealand farms, but their use had to be matched with an understanding of the impact they had on the bottom line, he said.

New Zealand dairy farmers must focus on their strength of growing grass and turning it into milk more efficiently than anyone else to pass onto future generations.

The need for business discipline was important, as was the farmers' ability to forge strong relationships with their bankers to help to manage cashflow and produce strong balance sheets.

Sir van der Heyden said volatility was already evident in milk powder prices and this was expected to continue.

Global dairy consumption growth was expected to recover to about two per cent by the end of this year, adding demand equivalent to Fonterra's total production every year.

"With global supply tight - strong demand means prices should remain well ahead of long-run averages. But with much more volatility," he said.

This made forecasting a challenge, and created difficulty for farmers who wanted to budget.

However volatility was a fact of life which farmers should embrace.

"(It's) a constant - we better get used to, work with it - and change how we run our farming businesses."

Those who didn't might find it tough going in "this new world", he said.