Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price

Dairy prices increased by 3.9% across the board at the latest Fonterra global auction. The lift followed rises of 1.3% and 4.3% in the December auctions which took dairy prices to their highest level in 11 months, defying those analysts who believed Covid-19 had disrupted dairy markets.

In the latest auction WMP rose 3.1% to $US3,300 a tonne, its highest level in 12 months. Other significant movements included a 7.2% lift in the price for butter to $US4,452 a tonne.

ANZ agricultural economist Susan Kilsby said the auction results came as a great surprise and as a very positive start to the new year. She contends it strengthens the likelihood Fonterra’s milk price payout this season will be closer to the higher end of the range Fonterra is currently forecasting.

The big co-op in December narrowed the range to $6.70/7.30kg/MS.

So what are the chances, if the trend evident in recent GDT auctions continues, of the payout going even higher?

Point of Order believes Fonterra should go hard to instil a fresh wave of confidence across the dairy industry, in the wake of the Covid-19 pandemic which has done so much damage to other export industries including tourism and international education.

Morale in the dairy industry has itself taken a buffeting from those elements in the community (including some within the Ardern government) who spread the mythology about “dirty dairying”. In that context it has been instructive to read the headlines in the media about the no-go zones on Aucklanders’ favourite beaches caused by the city’s waste systems.

But there is also a pertinent argument for Fonterra to maximise its payout this season in order to encourage its farmer-shareholders to once again think in terms of increasing production.

NZ badly needs the foreign exchange the dairy industry earns on international markets.

Modern technology is available (and many NZ dairy farmers have deployed it) to ensure production is maximised, even though the number of animals in individual herds have been stabilised or even reduced.

Fonterra earlier in the season indicated it would be pumping $10.5 billion into the rural economy this season. And, of course, this will be expanded by the payouts of other dairy companies, like Westland, Tatua, Open Country, Synlait, and Miraka.

But Fonterra is the leader by far. Its example is a spur to the others.

Some observers would argue in the wake of the widespread economic dislocation caused by the Covid pandemic Fonterra could now become the “national champion” which its original architects believed it was destined to become. Moreover, if it inspired the kind of confidence in the rural economy which would ensure production reached new heights, even those elements in the
government which have been critical of the dairy industry might be won over.

In its traditional post-election briefing to the incoming minister, the Ministry for Primary Industries pointed out 85% of all agricultural output is exported and provides 70% of all goods export receipts. It said the global economy was forecast to decline by 4.4 % this year.

Although agriculture withstood the impact of Covid-19 better than most sectors it would be exposed to weak demand from a nervous world economy, and some sectors were likely to struggle financially.

This problem would be especially severe as governments around the world eased back on fiscal and monetary stimulation, thereby reducing the buffer between ordinary businesses and general economic conditions.

So this is the time for Fonterra leaders to step up. Already CEO Miles Hurrell has re-shaped the executive team; the new chairman Peter McBride has the credentials for his role; the co-op’s finances have been straightened out.

Now is the moment to begin a new chapter.