Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Professor of Agricultural Economics, Alan Renwick, recently joined Lincoln from University College Dublin (UCD) in Ireland.
He says high debt levels, Fonterra's challenges, and the movement away from grass-fed production methods here, are capturing Irish attention.
With quotas now removed in Europe, by the end of 2014 $4.53b had been invested in new production facilities for dried dairy products in Europe, mainly in Ireland, North West France, Netherlands, and Denmark.
Professor Renwick says leading up to the removal of quotas, much in Ireland was made of the fact that in 1984, when they were implemented, Ireland and New Zealand produced roughly similar quantities of milk, and production had been growing at a significant rate.
Due to quotas, Ireland remained at that level, around 6 billion litres for nearly 30 years, while production in New Zealand increased fourfold, so Irish eyes have been turned south to see how.
However, everything is not seen as positive.
The high levels of debt in New Zealand are used as a warning to the Irish industry as it develops post quota, he says.
"A strength in Ireland is the low indebtedness of Irish farms. There is concern that expansion will lead to increases in debt and the vulnerability of businesses."
Ireland also has a much more fragmented processing sector than New Zealand and much had been made of the Fonterra model and that Ireland should try and emulate this, he adds.
"However, recognition of the challenges facing Fonterra, and the success due to innovation of some of the Irish cooperative businesses, have raised questions in the minds of those in the sector whether actually smaller more flexible businesses may not be so bad after all."
Like New Zealand, much is also made in Ireland of sticking with the grass based seasonal system aimed at keeping forage costs at a minimum.
However, commentators feel New Zealand is moving too far from its core strength, grass production, and therefore in danger of losing its competitive advantage.
He says Bord Bia (the Irish Food Board) have invested heavily in developing and promoting their sustainability programme, Origin Green.
"This is which particularly relevant to the recent events in New Zealand as it has a strong focus on Animal Health and Welfare."
Asia is also increasingly becoming the market of choice.
"With EU markets stagnant, or declining, much of the new production from Ireland is targeted at the same markets as New Zealand's production.
"Origin Green ambassadors, working with Irish companies, are being placed in markets across the globe to develop the sustainability message."
Increasingly, he says, they are also investing heavily in trying to improve understanding of the needs of Asian customers, and are supported by recognition in Asia of the strength of EU Food Safety legislation and practices.
