China is coming quickly out of covid lockdown and the fundamentals of that market for dairy products are strong, Fonterra chair Peter McBride says.
“It has a rising middle class and the government’s push for more dairy consumption.
“We are cautiously optimistic about growing demand from China and the recent Global Dairy Trade lift in prices in early February was largely a China story.”
McBride and fellow director Andy Macfarlane shared the stage at the Northland Dairy Development Trust annual conference, outlining the major risk factors for the co-operative.
Macfarlane said climate change risks are being taken very seriously by the company, on behalf of milk suppliers.
He said climate change is a strategic risk coming down the track – one that in 20 years will run us over if we ignore it.
“The scale of events and their frequency have flow-on effects into the availability and cost of insurance,” he said.
“It is also influencing the bankability of the dairy sector, and of New Zealand.
“Auditors also look very closely at the risks of surviving into the future.
“Are you looking at the freight train coming down the line and what is your response, they ask.”
Fonterra is now paying much higher energy costs and it has to mitigate that drain as much as possible.
Global activism is also a distraction, at best, and a possible large legal cost.
High-value customers also require changes to be made in sourcing sustainably, and regulatory impacts may also require responses.
“We want to be in charge of our own destiny and not leave it to politicians.
“We need to maintain industry dominance and market share to be able to manage risk.”
McBride said balance sheet strength is very important, allowing inventory to be carried over if necessary to manage price volatility.
Fonterra is funding research into reducing methane production in ruminants by MIT in Boston, headed by a New Zealander, Professor Ian Hunter, professor of mechanical engineering.
“How do you maintain or improve productivity while reducing the carbon footprint at the same time?” Macfarlane said.
Fonterra already spends the most on sustainability research of any entity in New Zealand and it is now bringing in funding and collaboration with the meat industry, genetics interests and the fertiliser industry.
“While we are optimistic of progress, it will be 1% a year for 30 years, not a magic bullet.”
