KEY POINTS:
Gull Petroleum unveiled its biofuel-petrol blend last month, containing 10 per cent Anchor Ethanol - a byproduct of whey - and it became clear the dairy boom was doing much more than turning milk into "white gold".
It is also transforming waste into wealth.
And now a global dairy cabal on whose board Fonterra's Andrew Ferrier sits is hard at work repositioning another waste byproduct of the cheese-making process into what it hopes will be the next "superfood".
Whey protein may already be popular as a bodybuilding supplement, but the Global Dairy Platform, formed at Ferrier's suggestion to engage in "pre-competitive" research for the dairy industry, is not happy merely with "niche" products. It wants greater returns from the 80-130 million metric tonnes produced annually, beyond its limited use in animal feed and food.
"Since every 100kg of milk creates 10-20kg cheese and 80-90kg liquid whey, what to do with the whey protein has been a problem for processors since the time of the ancient Greeks," the GDP says.
Some countries spray whey protein on fields as a form of disposal, but since it is 100 times more polluting than raw sewage, the GDP wisely notes that the "options for disposing of it in this way are likely to be limited in the future as environmental practices tighten".
Fortunately, the aged and the obese look set to relieve the cheesemakers' burden.
Those are the two groups the GDP has highlighted as it gears up to scrutinise research into the substance's properties relating to the "protection of lean body mass, weight management and immune and antioxidant effects", and to identify "the strength of the potential messages that could be delivered against each of these opportunities".
"An ageing population worldwide suggests that whey protein holds considerable promise in the treatment of both sarcopenia (loss of muscle tone) and changing protein metabolism caused by a variety of clinical conditions," the GDP says.
"Increasing obesity rates in developed countries also make whey protein's role in weight management of great interest, not only to the medical community but also to the informed public."
RISKS OF DAIRY DOMINATION
Fonterra may be riding high, but the business of dairy dominion never looked so risky, judging by a detailed prospectus the cooperative has issued as it rolls over some US$2 billion ($2.85 billion) in term borrowings on the Luxembourg Stock Exchange.
In a surprisingly candid litany of potential risks in relation to the term notes, the dairy giant details in paranoid fashion the factors that may render the good times bad in short order.
Apparently Fonterra's good fortunes are heavily at the mercy of "foreign government actions". These include tariffs, quotas, other non-tariff barriers, subsidies and food-related regulation - which can result in "substantial shifts in Fonterra's competitiveness and the levels of returns from overseas markets".
Examples include recent pressure to restrict imports of milk protein isolates (specialised protein products) into Canada, intervention price cuts introduced as part of the EU Common Agricultural Policy reforms since 2003 - which have reduced Fonterra's returns from that market - and the commercial impacts of regulations for the administration of imports into the EU of New Zealand quota butter and cheese.
The cooperative also fears the effects of further trade liberalisation, such as the unlikely conclusion of the Doha Development Round of the World Trade Organisation.
And then there are the potential costs of measures relating to New Zealand's Kyoto Protocol obligations.
Selling across borders exposes Fonterra to the "risk of breaching foreign customs and import duty regulations", which could land it with "extended legal action, financial penalties, prosecution, temporary trade embargoes and even permanent loss of market access".
What's more, the "relativity between the domestic market and international market prices" periodically results in "dumping allegations" being made against our largest company.
Significant sales to non-OECD and developing markets are a dark cloud on Fonterra's horizon, given that their economic and political instability in comparison to western economies might lead to the loss of an investment or default by a significant debtor.
Closer to home, the prospectus points out that the "growing concentration of supermarket retail housebrands in New Zealand and Australia" carries the "dual risk of squeezing margins and also the risk of losing market share if a supply contract is lost".
And while Fonterra sources some of its product overseas, the majority comes from New Zealand, raising fears for the future of the business should extreme climate change or disease outbreak among cows - such as foot and mouth - materialise.
EU PRODUCTION UP, US DOWN
The typical explanation for why dairy commodity prices have risen so far and so fast often cites falling milk production in the EU - related to the end of dairy subsidies - and in the United States, where the biofuels industry is consuming the maize once destined for feeding dairy cattle.
But US milk production for July was 3.9 per cent above that of the previous July, according to William Bailey, chairman of the department of agriculture at Western Illinois University.
"Despite higher feed prices and speculation that reduced use of bovine somatotropin would reduce US production, production has gone the other way," he says.
Which may be why some people seem to suggest butter and cheese prices - though still strong - have peaked, while both non-fat and whole milk powder prices are on the wane.
However the turnaround is not necessarily as categorical as Bailey's US production rise might suggest.
Westpac agribusiness economist Doug Steel says that while the 3.9 per cent figure is "certainly a surprise", monthly figures can be volatile.
He says California suffered a sharp decrease in milk production in July 2006 because of drought, and so the 3.9 per cent figure also "came off a low base".
However, Steel, whose bank, Westpac, has been the most optimistic when it comes to recent dairy payout forecasts, concedes that "very high" global dairy commodity prices could be expected to induce some increase in supply, perhaps within 12 to 18 months.
"Even if they come back 5 or 10 per cent, that's still considerably higher than they have been in the last 10 years on average, so even under that scenario, the payout and forecast thereof are pretty much intact."
