Dairy conversions will continue despite downturn - Fonterra


Dairy conversions will slow but not stop according to Fonterra chairperson John Wilson.

That's despite the downturn in dairy prices and the environment commissioner, Jan Wright, saying New Zealand has enough dairy farms.

In an interview with The Nation, Mr Wilson says that farmers have to be very careful about where they convert land, but Fonterra won't be sending the message that New Zealand has enough cows.

"That's not in Fonterra's control. In fact, Fonterra is required to pick up all milk. So any new conversion that starts, we're actually required to pick that up," says Mr Wilson.

New Zealand has so far converted 1.8 million hectares of land into dairy farms.

Green Party Co-leader James Shaw says government incentives are part of the problem, contributing to the conversion of unprofitable land.

"One of the things the Government has been doing over the past several years is putting north of $400 million towards incentivising large scale irrigation projects, without which a number of these dairy farms wouldn't be possible," says Mr Shaw.

"This increases the cost of production and it's one of the reasons why a lot of dairy farmers are now at great risk."

Mr Shaw says it would be beneficial for both the environment and the economy if further dairy conversion was halted and a move was made towards value-added products. He says Fonterra should place emphasis on converting conventional dairy farms to organic.

"The price of organic milk is substantially higher than that of conventional, and well above the production costs."

Mr Wilson says increasing value-added products is a priority for Fonterra, but he can't give a target. About 19 percent of Fonterra's current production is classified as value-added.

The glut in global dairy supply should correct itself in the next six months, Fonterra chairman John Wilson says, but the commodity's future is still unclear.

New Zealand farmers have been hit hard by falling dairy prices caused by the glut, with around four or five billion extra litres of milk flooding the global market.

A Russian trade embargo, increased European dairy production and dwindling Chinese appetite has contributed to Fonterra slashing its payout for the current season to $3.90 per kilogram of milk solids.

The break-even point for most farmers is predicted to be around $5.25.

Mr Wilson says while global events are difficult to predict, the collective has been developing new markets to get every cent out of the business for farmers.

"We are really struggling to predict where global dairy prices are going to go but, to be fair, all commentators are having that challenge," he told The Nation.

"We believe that imbalance is going to correct over the next six months or so. It is very difficult to predict the exact timing of it.

"We have been talking about volatility for some years now. Of course, none of us expected it to be this low for this long."

The dairy giant announced on Wednesday it made a net profit after tax of $406 million in the six months to January 31 - up 123 per cent on the corresponding period a year earlier -- despite low international prices.

Newshub. / NZN