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ICOS hosted a meeting in Brussels where we met John Wilson the Chair of Fonterra Cooperative and senior director Blue Read who represents the shareholder council on the board. They were accompanied my diplomats from the NZ embassy.

In a wide ranging exchange, issues as diverse as markets, risk, coop ethos, training, climate change, policy developments and trade were discussed.

Current Markets

Wilson was bullish that the ‘fundamentals for global dairy were still very strong’, notwithstanding current market difficulties.

He stated that the last 5 years has seen that volatility has spread to a range of 60%, rather than the traditional figure of 30% that had been seen before.

His take on the world current market situation was that the alignment of high prices, low feed prices and good weather giving supply growth, along with key demand markets such as Russia and China retreating meant that the current difficulties were not unexpected.

He did however strike an optimistic note, saying that there are signs the Chinese buyers will ‘return to normal buying patterns’ in the next 3 to 6 months.

He felt that dairy inventory globally was actually quite thin, and that negative sentiment was driving the market.

Farmer & Industry Tools

Wilson was very strong on his belief that farmers had to take their own responsibility to react to market signals better. He said that cutting feed and culling cows where, from a NZ perspective, the main tools being used at farm level.

With regard to industry level attmpts to combat volatility he did acknowledge that dairy futures markets were much too ‘thinly traded’ at present to be effective. In terms of fixed price contracts Fonterra are only putting 5% of their milk into these and they claimed that that was the level of demand from their farmers in the coop.

Blue Read mentioned that currency exposure was also a big contributor to dairy price fluctuation.

Future Challenges

For NZ, issues around water and nutrient run off remain their biggest challenges domestically. Wilson claimed that he felt that NZ dairy domestic expansion was at its limit, despite bigger than expected gains over the past 5 years.

Innovation right across the supply chain is critical to get value added from an increasingly sophisticated world market. Wilson noted that the Scandinavian co-op Arla were particularly good at focusing on the customer rather than the producer.

Fonterra themselves are focusing a lot of their innovation energy on international partnerships around whey. This is where they expect growth to come from in the future. Wilson said they were interested in developing partners in the EU where there has traditionally been a long and beneficial relationship regarding mutal standards, trust and perception.

NZ fiercely backed a more open trade agenda, and are actively looking to drive on a free trade agreement between themselves and the EU.

Other future issues touched on were the challenges of retaining a coop ethos in a globalising market, and issues around risk management in all parts of the dairy chain.

By Conor Mulvihill

European Affairs Executive