Two encouraging signals from the dairy industry this week underlined its strength as the backbone of the NZ export economy, all the more vital since the Covid-driven collapse of the international tourist industry.
First came news that prices strengthened at the latest Fonterra global dairy trade auction, with the average price reaching $US3157 a tonne. Prices for other products sold were mixed, with gains for butter and skim milk powder, but falls for cheese and other products.
Analysts said it was positive to see good, strong demand from China. The price of wholemilk powder which strongly influences the level of payout to Fonterra’s suppliers moved up 1.8% to $US3037 a tonne.
ANZ agri-economist Susan Kilsby said there had been some concerns that stocks may be building in China, so it was really positive to see good, strong demand from that market for the dairy industry.
“We do often see buying from China ease back a little bit at this time of the year, as they’ve sort of filled their buying programme for early next season when they have those tariff rate advantages.”
ASB’s Commodities Weekly report noted the result was broadly in line with what was seen at other recent auctions, with prices moving less dramatically than earlier in the year.
“The results continue to suggest a more settled market than we had earlier in the year, when sharp falls and steep lifts were the order of the day and Covid-driven uncertainty was at its peak,” the report said.
The other signal came from a2 Milk which, at its annual meeting, reported impressive results (although paradoxically they failed to inspire investors either in the Australian or NZ sharemarkets).
A2 Milk struggled to survive for many years after its launch in Dunedin 20 years ago by scientist Dr Corrie McLachlan and businessman Howard Paterson. Now it is sitting on a cash mountain of $854m.
And it is predicting its revenue in the current 12 months will reach as high as $1.9bn this year.
But that’s not enough to stir investors. Mark Lister, research head at brokers Craigs reckons the shareprice reflects caution about what might lie ahead.
“ The second half will be a tough one for them and it still feels like there is still a lot of uncertainty in terms of getting things back on track.”
Lister thinks much will depend on how the daigou infant formula trade with China recovers.
“It’s been a very profitable channel for them, but at the same time they are reliant on it”.
A2 Milk says trading conditions in China remain strong, and chairman David Hearn told the annual meeting there have been encouraging signs for the channel since Melbourne came out of lockdown three weeks ago.
Trading conditions in China remain strong. The company says this gives it confidence that notwithstanding the current headwinds the fundamentals of the business over the medium term remain strong.
The Australian fresh milk brand continues to go from strength to strength, with market share rising to 11.6% at the end of October.
Key strategic priorities are to:
- Maximise growth from infant and toddler consumption in China;
- Develop a broader nutritional milk portfolio in China;
- Build meaningful scale in the USA, and;
- Continue to investigate new markets”.
Clearly A2 Milk has become a key element in driving the expansion of NZ’s dairy markets to faster growth.
It has relied on other processors such as Synlait (in which it is a shareholder) for processed product. Now it is doing due diligence on buying 75% of Mataura Valley Milk with its state-of- the-art processing plant at Gore. This will give it a significant presence in the region which will please those dairy producers in Southland who think Fonterra has not served them well in the past.
The other distinguishing feature of A2 Milk is that growing scientific evidence continues to underpin the brand.
Now, on its 20th anniversary as a New Zealand company, it has moved a long way from the early studies, with a significant increase in the number of clinical human studies that have been published over the last few years. More recently it has sponsored studies across multiple age groups, populations and consumer benefit areas.
So even though the company may have lost some of its sharemarket gloss, it has become a formidable player in NZ’s dairy export industry. And it has set itself equally formidable goals, including increasing its share in the highly competitive US $13 bn dairy market —where last year it increased revenue by 90%.
It is ambitions like these which should inspire the rest of the industry.