Wednesday, August 7, 2013


Overnight, the latest scheduled Milk Powder auctions resulted in a very minor hit on the Fonterra branded  product in world Markets.

Product, separated from the Whey Protein powder at the center of the incident that had talking heads equipped only with a liberal dollop of desire to attack the dairy industry and or the government, held values very close to already very high world prices and Fonterra's richly deserved premiums were maintained.

Some of the more pragmatic and sensible commenters have retreated from the doomsday scenario and recognised the manufacturing cockup and its subsequent bumbling response by the company for what it was and its place in the 2.5 million tonnes of Fonterra's annual output.

I have no wish to minimise the  cockup for what it was and am as rabid as anyone to;
a ensure a repeat is handled significantly better. (there will inevitably be one)
b see responsibility attributed accurately,
c see some accountability and repercussions fall to those whose actions fell so spectacularly short,
d see this for what it was, ie a major management error within the systems of our largest company,
e an end to the rantings and ravings that this mess was somehow due to actions or omissions of the government.

Fonterra is a dominant player in the NZ dairy Industry but talk of its dominance as a government sponsored Monopoly is just commercial nonsense, Tatua Dairy in the Waikato, Synlait in Central Canterbury and Westland Dairy on the SI West Coast are all operating in direct competition to Fonterra and afaik there is absolutely no restriction on expansion for any of those and no barriers to another player setting up if the
so called  "monopoly" giant is not performing or creating other opportunities elsewhere.
The merger of Kiwi Dairy and NZ dairy to form Fonterra was a necessary and very successful action to allow the NZ dairy industry economies of scale and branding to compete on a more equal footing with other international food giants. That Tatua and Westland stayed out was their call  as was the more recent establishment of Synlait at Rakaia. However they enjoy some 'piggyback' advantage as the Fonterra brand has grown and will also suffer if it gets tarnished.

I well recall the equally ill-informed reactions to the annual profit reports of J Wattie Canneries, in the middle years of last century. Profits due only to the fact that at the time it was a dominant player in preserved food manufacture and a very large commercial enterprise in the NZ scene protected from world trade by tarrifs and restrictions but to Joe and Josephine Struggler, JWC as it would be named today, appeared eyewateringly large. The fact that Watties had emerged as that very large player from a government sponsored solution to the food crisis during WW2 never seemed to counter those envy inducing emotions.
The Fonterra saga is no different, yes it is a very large and dominant player in NZ but in the real world is just another player competing with innumerable larger corporations.
One fact that is often submerged in reporting on Fonterra's position in the world dairy trade is that NZ is at the top of the table as a dairy exporter whereas much of the competition comes from large national producers, many state subsidised, whose production is consumed domestically.  In the case of The US and Europe among others, have inefficient operators surviving in a heavily subsidised market.
That went out the window for NZ farmers in the Douglas reforms nearly 30 years ago and we are now continuing to see the wisdom of those massive moves that caused so much angst in 1985/6.

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