ANZ Warns of Milk Price Risks as New Dairy Season Begins
The new dairy season is kicking off with plenty of risks to the forecast farmgate price, both upside and downside, says ANZ agricultural economist Matt Dilly.
Nimbleness and agility is the key – both for farm businesses and for the bigger companies.
"I don't think we understand well enough the level of volatility that will continue for the foreseeable future," the former Beef + Lamb NZ chairman told an Agcarm conference in Auckland.
Dairy farmers are sick of hearing it, but the future is still bright: the fundamentals are incredibly strong, Petersen said.
Finance Minister Bill English had been reported as saying we will never $8/kgMS again. "Well, he is wrong: I guarantee we will. We will see $4/kgMS again as well," Petersen says. "That's what's happening in these markets."
Market insights and market intelligence will be important in the next 12-24 months, he said.
Food retailers now operate on just-in-time delivery. NZ produces 30% of the cross-border trade in dairy – that will always get hit first and hardest by volatility. Domestic producers will always be more cushioned.
"We need to build a bit more resilience. I get a bit frustrated with farmers moaning about volatility.... looking for someone else to fix these problems.
"What we don't do well enough in NZ – as growers and producers – is set ourselves up to be more resilient in the face of this volatility."
Our country of 4.6 million produces enough food for 40 million people, Petersen said.
"So we're not looking to sell food to the masses. We're looking to target those discerning consumers who will pay premium prices for our quality products."
The world was built on self-sufficiency in food but now, with scarce resources and a lack of water, countries are realising they can't rely on producing food themselves forever. So the sector will see volatile times but also continual upward movement in demand.
Petersen says to succeed in the world we need to be much more nimble and agile than ever before.
"The big companies and corporates are struggling with the pace of change happening worldwide. The pace of change is phenomenal.
"Very often the big companies don't see it coming or when they do it is very hard to react, it is hard for them to turn around, it is hard for them to engage in an intimate way with a lot of the customers.
"My advice to big companies is 'yes you have a future'. But in my view you need to start to break yourselves down a bit and get into smaller more agile groups to deal more intimately with groups of consumers rather than countries and markets."
Nimble and agile is the key, he said. Big international food companies like Tesco and McDonalds have been challenged in adapting to the pace of change.
