The Udder View

by July 24, 2019
udder view

The Udder View

Are dairy cooperatives a dying breed?

Perhaps not on a global scale but a closer look at Australia and New Zealand dairy sectors, you could be forgiven for thinking they are.

With the unsavoury demise of what was Australia’s biggest co-op, Murray Goulburn, now owned by Canadian giant Saputo, co-ops now account for less than 5% of the milk pool in Australia.

At home, the dairy co-op model has also been rattled; within six months Westland Milk, founded in 1937 by dairy farmers on the West Coast of the South Island, has gone from a proud dairy co-op to another NZ dairy plant in the stable of Chinese giant Yili.

Westland’s demise leaves just two dairy co-ops in NZ; Fonterra and Tatua. It may pay to mention here the Organic Dairy Co-op, which started four years ago, processes and supplies organic milk.

Nearly two decades on from its creation, Fonterra is still handling about 80% of all New Zealand raw milk and remains the dominant player in NZ.

But the co-op, with 10,000 farmer shareholders, is facing its own problems: announcing a first ever net loss of $196 million last year.

On September 12, Fonterra will announce its 2018-19 annual results and an update on its contentious asset sale to steady its balance sheet.

The iconic Tip Top brand has been offloaded. But is it time, as some critics say, to chop up this $20 billion beast and create a separate discretionary investment vehicle to chase the money needed to hit the high value, high earning branded consumer product markets?

Advocates of the co-op model say let’s not even think about the potential sale of Fonterra.

In NZ, co-ops have a special place; our largest 40 co-ops (led by Fonterra), mutuals and societies generated 16% of our GDP in 2017/18.

Members own and control the company. Profits are retained locally. Co-ops globally and locally have a strong record of giving back to local communities.

Westland farmers no longer own their processing plant, from now profits will be repatriated to China.

Yili will match Fonterra’s payout for the next 10 years, what about beyond 2029? What will happen to land values after the 10-year period if Westland MP’s payouts then slip again to well below its competitors? Who will then buy those farms?

Life without your co-op can be hard; just ask our dairy farming friends across the Tasman.

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