Short-term milk supply gain, long-term pain?

 He argues while the measures may bring initial supply gain, it puts at risk the long term supply by encouraging short-term opportunism, while jeopardising the loyalty of committed farmers.

“If the farmers lose the understanding and commitment to the cooperative that has built the dairy industry, they will be a meat industry before you know it,” he told the AgCarm conference in Auckland recently. However, Fonterra has defended its strategy to grow its local milk pool.

Fonterra’s group director cooperative affairs, Miles Hurrell, says Fonterra launched mymilk to grow its New Zealand milk pool, increase market share and provide a new pathway to membership in the cooperative.

“We’ve taken this step because it is good for the cooperative and the country for Fonterra to be the first name on the list for farmers considering their supply options,” he told Dairy News.

“Our farmers support the cooperative model and the financial returns coming back into New Zealand.”

But O’Connor says investment in the dairy industry by Vietnam, China and other players is chipping away at the supply.  “Fonterra has very efficient, well utilised plants – some of the biggest plants in the world – but if the efficiency is reduced because they can’t get the guaranteed supply, then we are losing out as an economy, not just one company.

“Fonterra has been implementing some desperate measures to try to retain supply. Idiotic in my view and there are a whole lot of weird and wonderful ideas. Investment – they are going out to get international investment to come into Fonterra, they are going out offering some farmers better deals to keep their milk supply in the short term… kind of.”

He says he is a dairy farmer who is passionate about the cooperative and supportive of Fonterra. But as an Opposition spokesman it is his job to promote some “good lateral thinking” on issues.

O’Connor later explained to Dairy News that Fonterra has brought in measures such as fixed contracts, an extended time frame for sharing up and mymilk.

“In my view these are a fairly desperate set of provisions to try to maintain supply to the cooperative. This was the inevitable outcome of the capital restructure.

“Until the core philosophy of the cooperative is understood and promoted by Fonterra they will continue to lose those farmers who are simply there for the short term gains without understanding the long term value.

“I’m a staunch supporter of Fonterra, of its importance and value to the New Zealand economy and more particularly to the dairy industry.”

He does not believe all the solutions were properly debated before the capital restructure. “It’s no good crying over spilt milk, I understand that, but if the farmers supplying Fonterra do so without the underlying understanding of the cooperative’s value then that short term supply will put at risk the loyalty of the other farmers who understand that.

“Just as the meat cooperatives have been destroyed from within by short term opportunism of the farmer suppliers, so too could that sad outcome face Fonterra.”

More desperate measures to retain milk supply won’t work until there is more commitment to the co-op and its philosophy by the people supplying it, he says. “The risk is you have a growing divide between the farmers who are loyal to the coop and will continue to supply because they understand that long-term intergenerational obligation, and the short-term opportunists who are coming in and sometimes negotiating a better price for their milk.”

He says it is a serious issue when a state-owned agency such as Landcorp is the beneficiary of greater market knowledge and size at the expense of loyal suppliers. They are getting $7/kgMS for a proportion of their supply this season.

He says he has concerns about the growing number of independent Fonterra directors. “The directors of a co-op need to understand and believe in the philosophy of a co-op so it’s long term intergenerational responsibilities are paramount in their thinking.