The study, carried out by the New Zealand Exchange (NZX) and based on project data provided by Fonterra® and Levno®, also found a 62% reduction in milk reaching critical scores and a 45% drop in insurance claims – highly contributed to by the 85% lower likelihood to claim insurance for refrigeration, agitation, or power related failures – by adapting the technology.

The technology could bring about the same improvements in the UK, dairy experts claim.

The rollout of MVM was launched by Fonterra in part to drive up milk quality, along with other on-farm and transport related benefits, and the study was supported by Fonterra to help quantify the improvement in milk quality.

Fonterra is a New Zealand dairy Co-operative owned by thousands of dairy farmers. The study involved introducing monitoring telemetry to the milk vats or tanks of Fonterra’s farmer owners and comparing the data, from a subset of almost 1200 farms, to the year prior to the technology being introduced.

The most popular MVM platforms used in the study were Levno’s Trim and Full Cream solutions, with the latter providing a 24-7-365 escalated human response service. This alerts farmers to potential problems with their milk within 10 minutes of detection and continues to monitor the data until the situation is resolved.

The study data was independently analysed by New Zealand Exchange (NZX).

It revealed that Levno’s Full Cream product reduced total bacteria counts by 69% compared to storing milk without MVM technology. Coliforms were down 42% as a result of installing MVM technology and insurance claims dropped by 45% in total.

Milk temperature was on average 12% lower using Full Cream, with 19% fewer collections made above 12^oC and almost none above 14^oC.

Milk quality was also assessed against Fonterra’s Milk Quality Index (MQI) which uses multiple data points to plot the degradation of the milk.

The measure is used to plan logistics and downstream processing of the milk, and to drive efficiencies in collection.

The study found that by implementing Levno’s Full Cream, farms achieved 22% fewer medium MQI scores, 26% fewer high MQI scores, and 62% fewer critical MQI scores.

According to NZX, the average value of ‘milk saved’ as a result of implementing MVM technology equated to NZD$12,863 per farm.

The objective of the study was to confirm that the introduction of MVM, technology, and Levno’s Full Cream solution, would drive material and sustainable improvements in milk quality.

Results found that after analysing the data provided, it is clear that the introduction of MVM technology improved the on-farm milk storage process and reduced the risk of degraded milk being supplied to Fonterra.

Multiple measures helped to corroborate this outcome – from the MQI measure during storage, milk temperatures at the time of collection, bacteria and coliform results, and the number of insurance claims by farmers. Importantly, there was also a significant reduction in the upper quartile of those measures with fewer outliers.

Additionally, the Full Cream solution further improves the quality of milk stored on farm and reduces the amount that may require disposal due to poor storage practices. The advance in technology has changed the way on-farm raw milk is monitored, and therefore protected.

The end result is better quality milk with significantly fewer instances of milk being registered as ‘critical’ on Fonterra’s MQI score.

James McCreery, national planning & dispatch manager at Fonterra, said: “We are providing tools to our farmer owners to continue to help them be the best dairy farmers in the world, and Levno is a tool for them to ensure they are supplying the best quality milk possible.”

He added one of the greatest strengths of Fonterra’s partnership with Levno has been the people.

“They brought in a lot of experience working with New Zealand farmers,” James said.

“They also have got the 24/7 support team. The people at Levno make a big difference.”

Matt Lynch, Levno’s country manager for UK and Ireland, said the study demonstrated how Full Cream brought major financial benefits to Fonterra’s farm suppliers.

For example, Levno’s Full Cream has saved almost 2.3 million litres across Fonterra farms during the latest 2023-24 milking season, averaging 6,800 litres per farm.

He said: “Full Cream helped the farmers who took part in the study produce higher quality milk and avoid the significant revenue loss associated with milk degradation and wastage.

“It also helped them avoid costly incidents where milk was not fit for collection and where an insurance claim was required for the loss. With each claim attracting an average excess of $500, that’s a huge saving.

“With dairy farmers in the UK facing a reduction in support payments, technologies like MVM offer new ways to bring efficiencies to dairy enterprises which will help drive the long-term sustainability of the industry.

“The ability to monitor milk quality in real time and resolve issues quickly means less degradation, less wastage and ultimately, a better return for producers.”

To read the full detail and explanation of findings click here.

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To support the dairy sector, the government has introduced several measures, including reopening agricultural export registrations to boost exports and generate foreign currency revenue. Overall, its cow milk production has dropped by 7.4% to 10.8 million tons, which has meant a rapid recovery in domestic milk prices, but a decline in consumption of 7% for 2024 estimated. Its exports have been helped by the currency devaluation, with dairy export volumes increasing by 10% in the first five months of 2024, versus the same timeframe in 2023. The question for Argentinian processors now is whether to serve the volatile domestic market, or aim for more profitable exports, the FAS says.

Meanwhile, in Australia, milk production is estimated to be up by 3.5%, to 8.8 million tons. The country is seeing rising domestic milk prices, as well as export demand from Asia for dairy products. The stability of its dollar has also kept the export prices competitive, according to the FAS.

Over in the EU, milk production is static, although the herd population has dropped below 20 million, due to lower milk prices and elevated production costs. Environmental policies such as nitrogen emission reductions in the Netherlands, are also playing a part in lowering milk production, the FAS reports.

In New Zealand, a slight 0.7% decrease in fluid milk production is predicted, to 21.1 million tons. Financial strains due to higher interest rates, along with higher inputs, are causing concerns, but the sector continues to invest in processing capacities. About 95% of the country’s production is exported, and in January, the final import duties covered in the New Zealand-China Free Trade Agreement were reduced to zero. Global export volumes are up 5% so far in 2024, with more diverse products being sent abroad.

Interestingly, New Zealand cheese exports have dropped by 6%, while Australia’s exports have grown by 28% YOY and both the UK and US have seen increases of 12% and 17% versus 2023, respectively. That being said, the EU remains the largest exporter of cheese with a 1% uptick seen this year, at 1.4 million tons in 2024. Its production will increase by about 1% to 10.5 million tons. Tourism and hospitality is contributing to upward consumption within the EU.

Australia’s cheese production is estimated to be 435,000 tons, and around 380,000 of that is consumed in the country. The exports are mainly sent to Japan, China and other southeast Asian countries.

In the US, the FAS is predicting a record-breaking year for the country’s cheese exports, to 466,000 tons, up 8% from 2023.

Individual FAS country reports covering dairy are available at: https://gain.fas.usda.gov/#/ The USDA Production, Supply and Demand database is available at: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

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Chairman Peter McBride says this is a significant move for the co-op, which will set it up to grow long-term value for farmer shareholders and unit holders. “We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” says McBride.
CEO Miles Hurrell says, “We believe we can grow further value for the co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing ingredients and foodservice channels. This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our foodservice channel, continued delivery on our sustainability commitments and investment in innovation. In this context, we are exploring divestment options for our global consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka.”
Fonterra’s global consumer business has grown over the years since Fonterra was formed and includes a portfolio of market leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.
“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk. Due to our co-operative structure, we believe prioritising our Ingredients and foodservice channels and releasing capital in our consumer and associated businesses would generate more value,” Hurrell says.
“At the same time, we believe Fonterra is not the highest-value owner of the consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential.”

As a next step, Fonterra will appoint advisors to assist with assessing divestment options over the next 12 to 18 months.

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This is despite significant hopes having been pinned on the agreement being able to liberalise and facilitate investment as well as trade: “Bilateral trade is expected to grow by up to 30 per cent within a decade,” said a European Commission note, adding that “EU investment into New Zealand has a potential to grow by up to 80 per cent” over current levels (1).

The New Zealand ministry of foreign affairs and trade has also tried to accentuate the positive, pointing out that all New Zealand exports would increase by up to NZ$1.8 billion (€1 billion) annually once the trade deal is fully implemented, with benefits to a range of sectors, including dairy. “New Zealand’s dairy sector will gain meaningful new opportunities for products such as butter and cheese, which will allow trade to flow more freely for the first time in many years,” a spokesperson said.

What the difference is

However, both the EU and the NZ government will struggle to persuade their respective dairy sectors that this deal will make a big positive difference.

Kimberly Crewther, executive director of the Dairy Companies Association of New Zealand (DCANZ), warned, “We need to be pragmatic about the amount of opportunity that this FTA offers for the New Zealand dairy industry.” Her organisation argues that the EU dairy market will overall remain largely closed to New Zealand exports of cheese, butter and milk powder, even after the agreement comes into force, expected in the first half of 2024 (2).

Under its tariff liberalisation terms, after seven years, additional limited tariff quotas for EU milk powder sales will grow by just 1.3 per cent; for milkfat (butter and anhydrous milk fats), just 1.7 per cent; and for cheese, a paltry 0.3 per cent, DCANZ has concluded. Crewther views the FTA as “a missed opportunity for Europe and New Zealand” as tariff liberalisation has been identified as one of the key actions to achieve UN Sustainable Development Goal 2: “Creating a world free of hunger by 2030” (3).

European Dairy Association (EDA) director trade and economics Laurens van Delft challenged this narrative, however, saying this was an “extremely favourable deal for the small island country…[which] will increase pressure on the European dairy sector.”

Small but strong

For sure, New Zealand joins this agreement in a strong position. In 2022, NZ dairy industry exports globally valued at around NZ$20 billion (€11.1 billion) according to Stats NZ, New Zealand’s official data agency. The country’s dairy exports to the EU were worth NZ$4.5 billion (€2.5 billion) in 2022, while the EU only exported dairy goods valued around NZ$33 million (€18.3 million) to New Zealand.

And while NZ has agreed to scrap a range of import tariffs on EU dairy exports, they will not compensate its “unilateral advantage” and “very generous market access”, due to the limited New Zealand home market (5.1 million people, compared to the EU’s 448 million), said van Delft. He argued import tariffs on EU dairy exports to New Zealand were “currently bearable,” and banning them should not incentivise significant exports, although, “there might be some opportunities under the geographical indication (GI) agreement for specialist cheese.”

EU dairy trade association Eucolait secretary general Jukka Likitalo agreed there were “opportunities for speciality cheeses as well as other high value products and whey derivatives.” He said, “The EU exports a lot of lactose to New Zealand, used for protein standardisation.”

But, agreeing with the EDA line, he noted, “The agreement will not offer much additional advantage as most duties are already at zero. However, remaining tariffs (eg, five per cent on lactose and whey powder) will be abolished.”

EU dairy sales to New Zealand would not increase significantly following the agreement, he predicted, “as NZ tariffs are either at zero or a maximum five per cent.”

Indeed, EU cheese exports to NZ have already been “very strong this year (6,000 tonnes in January to August), around double the usual amount (taking the average of last year’s).”

GI concessions

Here, the GI concessions made by New Zealand may make a difference. Indeed, they have not been welcomed by NZ dairy producers. New Zealand cheese makers wanted to retain the right to continue using the terms Feta and Gorgonzola for NZ cheeses, reflecting these styles. After strong lobbying from Greece and Italy, the trade deal will prevent NZ cheese makers using these terms for products sold to the EU, within New Zealand and exported elsewhere after a transition period of nine years. According to DCANZ, this will impact New Zealand cheese manufacturers’ business in both New Zealand and overseas, “while providing an open

door for European producers to further monopolise naming rights at the expense of large and small New Zealand cheese makers.” Lighter restrictions (4) will apply for Parmesan and Gruyère, allowing previous NZ users of these terms “to continue that use, provided if they used these terms in good faith for at least five years before the FTA comes into force.

Nonetheless, Crewther said these restrictions may limit future innovation in cheese making for large and small New Zealand cheese producers, she fears. “After decades of investment to grow markets for these cheeses, this has been a very disappointing outcome for New Zealand producers,” Crewther concluded.

In Europe, dairy experts and the European Commission welcomed New Zealand’s granting of GI protection for some 1,967 EU GIs, including Asiago, Comté, Feta and Queso Manchego cheeses, which could boost sales. “There might be some potential here, but the market of five million New Zealanders is rather limited,” van Delft argued.

Likitalo, whose association promotes dairy imports as well as exports, said, “Almost all dairy products were considered sensitive by the EU in these negotiations thus limiting liberalisation.” Full EU liberalisation, or zero tariffs, was only given to milk protein concentrates, casein, caseinates and certain other protein ingredients, but for all these products EU tariffs are already low. “All other dairy products will be subject to tariff rate quotas (TRQs) and the most sensitive product groups (milk powders and butter) even have an in-quota tariff,” he added.

Under the deal, most expanded EU TRQs (cheese, butter, milk powders) will be phased in over a seven-year period, with quota volumes gradually increasing. They will be subject to an import licensing regime, with licences issued on a first come, first served basis. A certificate of eligibility from the exporting party will also be required, Likitalo said.

He doubted Europe’s dairy prices would reduce through this FTA, although “at times, when the New Zealand product is considerably cheaper, there might be some downward pressure from imports.”

Fonterra speaks

Simon Tucker, director global sustainability, stakeholder affairs and trade at Auckland-based Fonterra, the major global dairy co-operative owned by 9,000 farmers, called the outcomes for the sector “very disappointing.” He said this reflects the protectionism that continues to afflict the dairy trade worldwide and particularly the EU dairy industry. “The agreement provides some small pockets of access for certain products over time, but overall commercial opportunities for products such as butter, cheese, milk powder and key proteins are constrained relative to the size of the EU market by a combination of small permanent quotas, in-quota tariff rates, and quota administration requirements.” He also commented on the issue of the GIs, which mean that Fonterra, alongside other New Zealand cheese producers, will no longer be able to use the term, Feta, after a transition period of nine years. Fonterra, however, was happy it has been able to retain the ability to use the terms Parmesan and Gruyère. (5)

According to Crewther, it is difficult to predict how the market will respond to the outcome of the FTA. Given the limited TRQ volumes, it is unlikely that a significant shift in New Zealand dairy exports to the EU will emerge, she said. “The government will promote opportunities for implementation of the FTA, but we do not expect any particular incentives to encourage uptake.”

She said the agreement largely maintains a status quo for New Zealand while placing significant additional costs on dairy trading and denying New Zealand exporters the ability to offer what they say are high-quality and lower carbon dairy products to European consumers. Fonterra stresses that NZ cows are 96 per cent grass-fed, with high standards of animal health and welfare, and with NZ soils having low nitrous oxide emissions.

For Ksenija Simović, senior policy advisor for trade, international advocacy and external communication at EU food producers’ association Copa-Cogeca, “the agreement is in its

infancy, so the real evolution will only come when we see how the flows are changing and how the sector is impacted.”

But she indicated that significant changes in EU/NZ dairy trade were unlikely. Today, around 90 per cent of the EU’s milk production is consumed domestically, while New Zealand exports around 90 per cent of its production, said Simović.

1 – https://ec.europa.eu/commission/presscorner/detail/en/ip_23_3715

2 – https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/new-zealand-european-union-free-trade-agreement/nz-eu-fta-overview; https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/new-zealand-european-union-free-trade-agreement/resources/

3 – https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/new-zealand/eu-new-zealand-agreement/text-agreement_en

4 – https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/new-zealand-european-union-free-trade-agreement/geographical-indications/nz-eu-fta-implementation-making-a-statutory-declaration/

5 – https://www.fonterra.com/nz/en/our-stories/media/fonterra-acknowledges-the-outcome-of-the-nz-eu-fta.html

6 – https://www.nzmp.com/global/en/about-nzmp/sustainability/low-carbon-dairying.html

The post The trouble with the EU/NZ trade deal appeared first on Dairy Industries International.

Meanwhile, the EU’s quota is 25,000 tonnes with the in-quota duty of 0% being phased in over seven years, with the addition of an in-quota duty for 6,061 tonnes allocated under the EU’s WTO schedule going from €170.6 to zero for cheese for processing and whole cheddar cheeses between 33 and 44kg in size. This quota will be managed on the basis of an import licence.

Butter to the UK will be reduced to zero tariff after five years on a first come first served basis, and whey and SMP powders after year four, with liberalisation at entry into force for liquid products such as yogurt and liquid milk.

For New Zealand butter exports to the EU, a new FTA (free trade agreement) TRQ (tariff rate quota) of 15,000 tonnes will be phased in over seven years with a steadily reducing quota duty until year seven, where in-quota tariff will remain at 5%. In addition, 21,000 tonnes of the current WTO quota of 47,177 tonnes (with an in quota tariff of 38%) will be reduced to 5% of the MFN. Import licences will be managing the quotas.

For milk powders to the EU, an additional FTA TRQ of volumes increasing from 5,000 tonnes at EIF to 15,000 tonnes from year six and beyond, with an in-quata tariffs of 20% on the MFN rate. For dairy PAPs and high protein wheys, the TRQ will rise to 3,500 tonnes in volume in year six and beyond will be opened with a 0% in-quota tariff.

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Westland CEO Richard Wyeth welcomed guests and provided them with an overview of the background of the lactoferrin project. Yili Westland’s resident director, Zhiqiang Li, spoke about the global market advantage that both Westland and Yili would gain from Yili’s investment in the new lactoferrin plant. 

The investment will enable Yili to rank among the top three leading global companies in the lactoferrin category, with a market share of approximately 10%.  

“Today’s launch of the lactoferrin programme will secure Westland as one of the world’s leading producers of highly prized bioactive ingredients,” Li told invited guests. “The investment also signals Yili’s commitment to take the global lead in the high-value bioactive dairy ingredients sector.” 

“We were one of the first to market with this highly specialised protein ingredient, and over the past 20 years have established a reputation as a manufacturer of a product of exceptional quality,” Wyeth said. ”Our bioactive ingredients innovation pipeline is well advanced, and we’re excited to be a step closer to bringing these concepts to commercialisation.” 

Lactoferrin, a multifunctional natural protein, offers immune benefits as well as antibacterial and antioxidant functions and is now widely used in food, pharmaceutical products and in other industries. As a consumer-oriented enterprise, Yili has anticipated consumers’ needs for products such as lactoferrin and is determined to bring more nutritious and healthy products to global markets. The company has invested considerable resources in R&D to tackle lactoferrin extraction challenges. 

Over the years, Yili has successfully developed its own directional lactoferrin extraction and protection technology, which can significantly enhance the quality of protein ingredients and increase extraction efficiency. 

According to analysts, lactoferrin is a crucial and scarce resource for the dairy industry. This project is therefore a significant step in Yili’s efforts at overcoming core technological barriers, strengthening its global influence, and developing its long-term strategic layout. 

The groundbreaking event was also attended by other notable guests, including: Minister-Counsellor of the Chinese Embassy in New Zealand, Chen Zhiyang; First Secretary at the Commercial Section of the Chinese Embassy in New Zealand, Pan Jiansheng; Consul at the Chinese Consulate-General in Christchurch, Xu Li; Vice-Consul at the Chinese Consulate-General in Christchurch, Li Muqing; Director of Industry and Stakeholder Management at MPI, Steve Cunningham; Mayor of Buller, Jamie Cleine; Development West Coast CEO, Heath Milne; and Westland Deputy Mayor, Ashley Cassin. 

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Westgold has been focusing on the Australian retail market for a number of years where its butter sales have continued to increase. “We have also seen good growth in our food service sales throughout Australia. Our products are now distributed by branches within the Bidfood, Superior Foods and PFD Food companies, who are significant suppliers in the Australian market,” he says. “Given the growth in the market to date, the time was now right for us to further promote our distinctive, high-quality products in Australia.”

Those attending the food show were able to sample Westgold’s products, either with bread, in shortbread or with choux pastry.  Westgold’s chef was also available to talk about the specifics of working with the products including their performance in certain dishes.

“As New Zealand’s second largest butter manufacturer, we were able to show the scale of our supply. Chefs and bakeries, in particular, liked the quality, flavour and creaminess of our butter and cream. A lot of people who visited our stall resonated with the Westgold story and liked that our butter is made using the traditional Fritz Churn method,” Yates says. “The team onsite also met some of Westgold’s ‘super fans’ – those retail buyers who already loved the product – and it was a great opportunity to speak to these consumers directly.

“We are seeing the results of investing time and money in increasing our food service sales in Australia. We have a large number of meaningful leads from the food show which we, along with our Australian importer, will now follow up on. Displaying our products at the food show will boost our presence in the market further and we are investigating attending another similar event later in the year,” Yates says.

Westgold retail products are available for purchase at New Zealand supermarkets.

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PolyJoule, a Massachusetts Institute of Technology (MIT) spin-off, is partnering with Fonterra on the application of the battery made from electrically conductive polymers, an organic based compound with the ability to act like metal.

Late last year the world’s first industrial scale organic battery was installed on a Fonterra farm at Te Rapa. The battery was cycled daily, supporting dairy shed operations for 10 months.

The co-op is now moving this battery to its Waitoa UHT site, which can be impacted by power disturbances leading to downtime and waste.

Fonterra chief operating officer Fraser Whineray says as a significant electricity user at about 2.5% of the national grid, a sustainable and secure electricity supply is vital to the co-operative’s local sales and exports.

“At Fonterra we have a strategy to lead in sustainability, and innovation partnerships are a critical ingredient to achieving this.

“The PolyJoule battery has a remarkable discharge rate, which may ultimately link with ultra-fast charging of our fleet, including Milk-E our electric milk tanker.”

PolyJoule CEO Eli Paster says he’s excited to partner with Fonterra and sees great opportunity for growth in New Zealand both in terms of supporting energy security and job creation in the manufacturing and technology sectors.

“We both have sustainability front and centre of our strategy and understand the importance of a reliable, green supply of electricity for quickly chilling the raw milk on farm, processing and distribution. New Zealand is a world leader in protecting the environment. Fonterra is a world leader in nutrition. We couldn’t think of a better partner to work with.

“Since PolyJoule batteries do not rely on lithium, nickel, or lead, the materials are easier to source and the batteries are safer and easier to manufacture anywhere in the world, including New Zealand.

“When you look at where the grid is heading and the number of batteries needed for the region, building a manufacturing base in New Zealand could create hundreds of new jobs and a new green energy hub.”

The PolyJoule battery installation is the third decarbonisation project Fonterra’s Waitoa site has recently adopted. Last month it announced the site would install a new biomass boiler and it will also be home to Milk-E – New Zealand’s first electric milk tanker.

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Local Government, Iwi, Industry and Fonterra employees were also present to recognise the significant milestone in the decarbonisation of New Zealand’s heavy transport, while also recognising the team behind the build. 

Named by Fonterra farmer Stephen Todd from Murchison, Milk-E is part of Fonterra’s fleet decarbonisation work, which is one of a number of programmes that’s helping the Co-op towards becoming a leader in sustainability. 

“Right across the Co-op our teams are constantly looking at how we can decrease our emissions – from on farm, to at our sites and throughout our transport network,” said chief operating officer, Fraser Whineray. 

“The team here at our Morrinsville Workshop have done a fantastic job of pulling this tanker together. Being a New Zealand first, there’s been a lot of creative thinking and Kiwi ingenuity to bring Milk-E to life.” 

Changes to the battery configuration have given the team an opportunity to trial other additions to improve milk collection efficiencies, reduce safety concerns, and reduce the amount of work required to customise a Fonterra tanker. A battery swap system is being installed at the Waitoa site where Milk-E will be based to trial how this could work within a fleet to minimise downtime from battery charging.  

“It’s been great to see the team turn challenges into opportunities so in addition to trialling Milk-E’s on-road ability, we’re also trialling a new electric pump, hose configuration and cabinetry,” says Mr Whineray. 

Fonterra received co-funding from the Government’s Low Emissions Transport Fund (LEFT), which is administered by EECA (the Energy Efficiency and Conservation Authority). 

EECA Group Manager Investment and Engagement, Nicki Sutherland, said, “We’re pleased to see this project come to life. New Zealand has ambitious targets to rapidly reduce carbon emissions, and transport is key, but heavy freight has proven hard to decarbonise. If successful, this project could be replicated across a number of New Zealand businesses.” 

The electric milk tanker will operate out of Fonterra’s Waitoa site, which Mr Whineray says is very fitting given it was the site of New Zealand’s largest fleet of electric milk trucks 100 years ago. 

Additional information 

For more information check out the 10 facts about Milk-E here.

Other work on Milk-E includes: 

• An electric pump on the driver’s side has reduced the pipework on the truck by 3.4 metres, reducing tare weight. 
• The milk hose now falls naturally back across the guards of the truck and is secured onto a Bayonet connection which locks the hose in place and seals the end of the hose in transit. 
• Newly designed doors that open out sideways with minimal moving parts, resulting in improved safety. 
• The need for a hydraulic tank and pump has been removed and a fully electric motor and pump has been installed. 

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As announced in February 2022, the partnership was subject to the approval of boards, clearance from relevant competition law authorities, and finalisation of transaction documentation. With those approvals now received, Fonterra, NZX and EEX each hold an equal one-third (33.33%) shareholding in the global dairy auction platform GDT. 

CFO Marc Rivers says the confirmation of the strategic partnership is an important milestone for Fonterra and global dairy participants.  “The move to a broader ownership structure marks the next step in the evolution of GDT – giving it a presence in prominent international dairy producing regions, with greater participation expected at GDT events.  

“It will bring more participants and transactions, stimulating further growth of risk management contracts available on financial trading platforms. 

“This creates opportunities for the growth of financial tools to better manage price volatility – which is something many industry participants, from farmers through to customers, are exposed to,” says Rivers.  

GDT chief executive Dr Eric Hansen says, “The GDT team is looking forward to working with EEX and NZX as strategic partners with strong interests in dairy and established reputations as regulated exchanges to enhance GDT’s role as an independent, neutral and transparent price discovery platform.” 

NZX chief executive Mark Peterson says the strategic partnership will strengthen GDT’s market reach benefiting New Zealand dairy farmers and customers. 

“At a time of geopolitical and macroeconomic instability, GDT’s vision to expand its global reach and provide better transparency in dairy commodity prices, is more important than ever for dairy market stakeholders,” Peterson says. 

“It aligns with NZX’s strategy of growing capital markets, connecting with more businesses, and creating greater value for shareholders and investors. In GDT, NZX is excited to be working with the best partners to achieve this.” 

Next steps for GDT include appointing a new board and planning strategic growth initiatives, such as more frequent auctions and bringing more sellers onto the platform. 

Fonterra’s transaction proceeds on sale total NZD$35m. Final transaction proceeds will be subject to customary post-completion adjustments. 

As with previous one-off transactions, Fonterra’s FY22 announced forecast earnings range will continue to reflect only the underlying performance of the business. 

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“The co-op considers the prevailing price particularly since late April has undervalued Fonterra shares, which is a key reason for announcing this buyback,” says McBride. The buyback programme will be made under section 65 of the Companies Act and may run for up to 12 months from commencement.  Fonterra may acquire shares through the FSM at the prevailing market price from time to time in that period.

This programme is separate to the allocation of up to $300 million Fonterra announced last year to support liquidity in the FSM as farmer shareholders transition to the Flexible Shareholding capital structure, through an on-market buyback (Transitional Buyback) and other tools such as the market-making arrangements.

McBride notes that Fonterra is preparing to implement the Flexible Shareholding structure as soon as possible but has not yet set a date for when it will be effective. In April, the government announced its support for the structure and has signalled that it expects the amendments to progress through Parliament this year.

“We remind shareholders that even though share compliance obligations remain on hold until at least six months after the new structure is effective, shareholders can still buy or sell shares within Fonterra’s current constitutional limits (which is generally 1x-2x a supplying shareholders’ three-season average milk supply). Shareholders should seek advice from their financial advisor, accountant, lawyer, or rural professional before making any decisions,” says McBride.

The maximum number of shares that may be acquired pursuant to this buyback programme and the Transitional Buyback (should that also proceed under section 65 of the Companies Act) taken together over the next 12 months is 80,667,893 shares. This number of shares is set in accordance with section 65 of the Companies Act and represents 5% of Fonterra’s shares on issue 12 months prior to the acquisition of shares.

The number of shares purchased under the buyback from time to time, and the average price, will be notified to the NZX and ASX on the business day following the date on which those shares are bought back. Shares bought back will be cancelled upon acquisition, so the number of shares on issue will reduce accordingly.

Throughout the buyback period, Fonterra will continue to assess market conditions, its prevailing share price, available investment opportunities and all other relevant considerations. Fonterra reserves the right to suspend without notice or terminate the buyback programme at any time.

Meanwhile, other local competitors and New Zealand media are querying the reasoning behind this buyback and the government’s for allowing the restructuring, according to New Zealand website Stuff.

 Please see this link for more explanation: https://www.stuff.co.nz/national/explained/128905326/fonterra-asked-the-government-to-change-the-law-in-doing-so-it-risks-increasing-both-pollution-and-milk-prices

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Fonterra CEO Miles Hurrell says the change in the forecast farmgate milk price is due to a number of recent events which have resulted in short-term impacts on global demand for dairy products – in particular, the lockdowns in China due to Covid-19, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.

“While the long-term outlook for dairy remains positive, and we expect global demand and supply to be more balanced over the rest of the year, we have seen these short-term impacts flow through into pricing on the Global Dairy Trade (GDT) platform. For example, average prices for whole milk powder (WMP), a key driver of the milk price, have decreased by 18% over the past four GDT events.  

“As an exporter to 140 countries we deal with these kinds of global events all the time, but right now we’re seeing the impact of multiple events. Coupled with inflationary pressures, it’s not surprising to see buyers being cautious.

“Our scale and ability to move products between different markets and categories remains important, and reinforces our strategic focus on ensuring our milk is going into the highest value products.

“This will be disappointing for our farmers, but the change in global dairy prices is coming off record high levels. At a midpoint of $9.30 per kgMS, this would continue to be the highest forecast Farmgate Milk Price in the co-op’s history and would see us contribute almost $14 billion into New Zealand’s economy through milk price payments, which supports the wellbeing of our local communities.

“Looking out to the rest of the year, global milk production is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production in the Northern Hemisphere, and we expect demand to recover as the short-term impacts begin to resolve.   

“While there is still a high level of uncertainty in global markets, the majority of our milk has been contracted for the season. It’s for this reason that we’ve made the decision to narrow our forecast range to +/- 20 cents.

“As always, there are a number of risks we are continuing to keep a close eye on, including potential impacts on demand from inflationary pressures and rising interest rates, increased volatility as a result of high dairy prices, and further disruptions from Covid-19 and geopolitical events.”

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Fonterra general manager of Sustainability APAC Jack Holden says the grass-fed farming model makes Fonterra one of the most carbon efficient producers of dairy in the world. “However, we have an aspiration to be net zero by 2050 and are investing in R&D and partnerships to help find a solution to reducing methane emissions.”

CSIRO research has shown that Asparagopsis seaweed has the potential to reduce emissions by over 80% in laboratory trials, and while Fonterra understands the reductions will vary out of the lab, all reductions count. 

“As with all methane solutions we’re trialling, what we need to find out is whether we can use this supplement in a way that is safe for cows, safe for consumers and to ensure that there is no impact on milk taste or quality,” says Jack Holden. 

“Over the past two years, 900 dairy cows on a farm in Australia have been fed small amounts of the seaweed supplement and the results have been promising at each stage. We are now expanding the trial across three additional farms, to test the supplement’s application at a commercial-scale.

“This will include understanding the practicalities of using the seaweed supplement as part of normal farming operations, which is critical because it needs to be easy to implement and beneficial for farmers if we want it to be widely adopted.

“If the trial proves successful, we have agreed with Sea Forest that Fonterra farmers will have first access to the commercial Asparagopsis solution,” says Jack Holden.

Sea Forest CEO and founder Sam Elsom says last year the company bought an additional 30ha farm as it dramatically increases its production of the seaweed supplement. 

“Asparagopsis is a common seaweed native to the waters of Tasmania and New Zealand, and we’re the first in the world to cultivate it at a commercial scale through both marine and land-based aquaculture.

“We needed a food industry partner to help us take this to a commercial scale, and we partnered with Fonterra because of its commitment to sustainability and innovation.

“We’re looking forward to working with Fonterra on the next phase, and although we’re still in trial phases, we believe this has potential,” says Sam.

Fonterra believes there will be no single solution to the methane challenge, with Asparagopsis one of a number of solutions the Co-op is looking at.

Other work Fonterra is carrying out includes:

• Tapping into its large collection of dairy cultures to create new fermentations the Co-op is calling Kowbucha, which could inhibit the methanogens that create methane in cows. 
• Working with Royal DSM, a global science-based company, to test whether DSM’s feed additive product Bovaer®, which reduces methane emissions from cows by over 30% in non-pasture-based farming systems, can do the same in New Zealand’s pasture-based farming systems.
• With MPI and DairyNZ, expanding a promising trial with Nestlé to include plantain in a cow’s diet to reduce the amount of nitrogen produced, reducing carbon emissions and improving freshwater quality. 

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The cadence of New Zealand official delegations travelling to Brussels is reaching a peak in May and June 2022. A clear sign for both, is the phasing out of travel restrictions and the perceived decisive momentum in the trade negotiations.

In summer 2020, the EU Commission had tabled a first dairy market access offer and made an ‘amended’ offer in summer 2021, where some of the EDA’s key asks were at least taken into consideration.

The EU dairy sector invests heavily in its green transformation to fulfil Green Deal commitments, but faces unprecedented challenges at farming and processing level: studies show that the Green Deal policy on its own will increase the cost of milk production in the EU by more than 30% by 2030, and hence risks to undermine the international competitivity of European dairy.

In today’s geopolitical environment, the EU Commission seems ready to give in to major New Zealand requests for dairy market access to the union, especially on high added value products.

The French EU Presidency, which had a very reluctant approach to these trade negotiations, is coming to an end on 30 June, and hence the main New Zealand delegation visit to Europe seems to be scheduled for July 2022, EDA adds.

We have flagged up our serious concerns with political decision makers, stressing the fact that opening up our EU internal market for third country’s dairy now is simply irresponsible, the association notes.

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Chief executive officer Miles Hurrell says Mr Rivers joined Fonterra in 2018 and has played a critical role in resetting the financial health of the Co-operative: “It’s been clear from day one that Marc felt a great sense of responsibility to our farmer owners, unit holders and also New Zealand’s economy.

“Our balance sheet is now in a strong position. We have a long-term strategy with clear targets out to 2030 and our farmer owners have given the green light on our Flexible Shareholding capital structure. Marc has been instrumental in all of these areas.

“We are moving from reset to a new phase of creating value, and Marc has decided that this is a natural point in time for a move.

“I would like to thank Marc for his contribution to Fonterra and for his counsel and advice to me, the Fonterra Management Team and our Board.

“Marc has agreed to stay until our Annual Meeting at the end of the year which will also allow for him to support me in identifying his successor and ensuring a smooth transition and handover.”

CFO Marc Rivers says his time with Fonterra has been a privilege: “I’ve learned a lot and also had the opportunity to be a meaningful part of the lives of many people across our Co-op.

“We have worked together to rebuild the health and wellbeing of Fonterra and I look forward to seeing the goodness the Co-op creates over the coming years.”

A search for a new CFO will begin shortly, the company says.

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Subject to the approval of Boards, clearance from European or any other relevant competition law authorities, and finalisation of transaction documentation, the partnership is expected to be completed mid-2022, with Fonterra, NZX and EEX each holding an equal one-third (33.33%) shareholding in the global dairy auction platform.

Fonterra chief executive Miles Hurrell says the move to a broader ownership structure marks the next step in the evolution of GDT – further enhancing the standing of GDT as an independent, neutral, and transparent price discovery platform, giving it a presence in prominent international dairy producing regions, and creating future growth opportunities.

“This is good news for our farmer owners, unit holders, and all dairy industry participants and is expected to lead to greater volumes being traded on GDT. It will bring more participants and transactions, stimulating further growth of risk management contracts available on financial trading platforms.

“We all know that dairy is one of the most volatile traded commodities,” he says. “This partnership is another step in helping to manage this risk for everyone – from the farmer through to the customer at the end of the supply chain. A more liquid dairy trading environment allows for the growth of financial tools which can be used by all participants to better manage price volatility.

“Our focus has been about securing the best partners, and NZX and EEX share our vision for a stronger, more liquid auction platform that benefits all involved. We are also closely aligned on future possibilities for GDT as the world’s most trusted reference point for dairy commodity prices.”

NZX chief executive Mark Peterson says the price discovery that GDT provides the international dairy industry is crucial for dealing with volatility and its associated risks.

“We see the expansion of the physical trading environment as both further strengthening existing financial contracts and enabling the creation of new tools and opportunities for dairy processors and end-users to manage price volatility. These offer clear benefits for New Zealand dairy farmers and customers around the world,” he said.

EEX chief strategy officer Dr Tobias Paulun says: “becoming a shareholder of Global Dairy Trade is perfectly in line with the EEX strategy of taking asset classes which we already successfully serve to a global dimension. With our experience in operating Europe’s leading trading platform for dairy futures, but also with multiple spot contracts in the energy space, we believe that we can be of value supporting GDT’s growth vision.

“At the same time, we can create value for the global dairy value chain by further improving price discovery and price risk management instruments.”

GDT Director Dr Eric Hansen says: “GDT is excited that the addition of NZX and EEX as shareholders alongside Fonterra will enable us to build on our success in establishing a global brand and expertise in price discovery to create more opportunities for our customers.

“The strong alignment of all three shareholding partners to GDT’s purpose of credible price discovery will support initiatives to increase liquidity on GDT, attract new supply from prominent dairy producing regions, and will strengthen GDT’s linkages to financial trading platforms.”

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Fonterra CEO Miles Hurrell, said varied weather and challenging growing conditions across many parts of the country earlier in the season saw actual milk collections down on the same time last year. “We were expecting conditions to improve over the Christmas-New Year period, but this has not eventuated. As a result, we have revised our 2021/22 forecast down 1.6% to 1,500 million kgMS.”

In response to the lower milk supply, Hurrell said at this stage no change is needed to the volume of product the co-op is offering on the Global Dairy Trade (GDT) platform, as it had already reduced the volumes due to high demand for off-GDT sales.

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The co-op has lifted and narrowed the forecast farmgate milk rice range to NZ$8.40- $9 (€5.06-5.42) per kgMS, up from NZ$7.90-$8.90 (€4.76-5.36) per kgMS. This increases the midpoint of the range, which farmers are paid off, to NZ$8.70 (€5.24) per kgMS. The higher milk price has seen the Co-op revise its earnings guidance to 25-35 cents per share from 25-40 cents per share.

Fonterra CEO Miles Hurrell says the lift in the forecast farmgate milk price range is good news and is an important boost to New Zealand communities. With a midpoint of $8.70 per kgMS, it would contribute more than $13.2 billion to the New Zealand economy.

“It’s the result of consistent strong demand for dairy at a time of constrained global supply. We’ve seen the impact of a number of events play out this first quarter. That includes the high price of feed in the US which has seen milk production growth stall and a lower-than-expected supply picture in Europe.

“Fonterra’s New Zealand milk supply is down around 3% on this time last season. While we expect that milk supply will be less than last season’s 1,539 million kgMS, the improving weather conditions and forecast milk collections for the balance of this season that are generally on par with last season support our current season forecast of 1,525 million kgMS.

“While we’ve seen demand soften slightly in China, global demand remains strong, and we think that will remain the case for the short to medium term.

“A higher forecast farmgate milk price at this level can put pressure on our margins and therefore our earnings, which is why we’ve reduced the top end of our earnings guidance.”

Overall, Fonterra has delivered a total group EBIT of $190 million (€114.5m) for the three months ending 31 October 2021. This was achieved at a time when input costs are significantly higher than the same period last year. These have been driven by a 30% increase in Whole Milk Powder prices.

Hurrell says there have been a number of factors at play in the first quarter. “We’re seeing stable sales volumes in our foodservice channel, but a milk price at these high levels has squeezed margins. Our Chilean business continues to improve but tightening margins and weaker local currency in other markets have impacted our consumer channel overall.

“In our ingredients channel, we’re seeing margins in our longer-term pricing contracts return to more normal levels, which has helped push total group gross margin up from the last quarter last year.

“We continue to see the benefit of our focus on financial discipline with lower interest expense, and operating expenditure down 2% on the same quarter last year.

“Looking at the whole picture, I’m proud of what we’ve achieved. With EBIT of $190 million and a strong farmgate milk price, we are starting to consistently deliver solid commercial outcomes.”

Outlook

While the impacts of Covid-19 continue to be felt around the world, Hurrell says the co-op is working hard to deliver for farmer owners, unit holders and customers and supporting employees.

“The resilience of our people and our supply chain means we continue to stay on top of the strong demand for our New Zealand milk.

“However, it is concerning to hear about new variants, which are potentially more resistant to vaccines. There is also the ongoing question of whether economies can rebound from the pandemic and then sustain their financial health.

“That’s why we have a 60-cent range on our forecast farmgate milk price range.”

Globally, teams are starting to return to the office following extended Covid-19 lockdowns. Hurrell says it’s been a challenging time for employees.

“In some of our regions, our people have spent more than 18 months working from home. We’ve supported them during this time and continue to support their safe return to the office. I want to acknowledge the extra effort from our employees that is helping us deliver good results for the Co-op.

“Here in New Zealand, we recently completed the rollout of our vaccination programme in partnership with the Ministry of Health, which saw more than 8,000 doses administered.”

Fonterra set out the next phase of its long-term strategy in September, with three key strategic choices guiding the co-op – a continued focus on New Zealand milk and to lead in sustainability and dairy innovation and science.

Hurrell says the co-op is confident in its strategy and 2030 targets and is already showing early signs of progress.

“As we continue to focus on New Zealand milk, work is underway on the divestment of our Chilean business and the ownership review of our Australian business, with the appointment of advisors to assist with both processes. Dependent on the outcome of these processes, we intend to return around $1 billion of capital to our shareholders and unit holders by FY24.

Hurrell says the focus on New Zealand milk is paying off with customers. “We recently launched our Mainland cheese range in Dubai’s largest supermarket chain. The range completely sold out, with customers using social media sites to track down the cheese in-store. Our in-region team is now looking at launching the range into other countries.

“We’re also focused on delivering innovative new solutions for our customers. Our new Ingredients ecommerce platform, myNZMP, is being embraced by customers across China, Latin America, South East Asia and the Middle East.”

Hurrell says the co-op is also using innovative technology to make the most of the natural goodness found in New Zealand dairy.

“A transformative dairy science collaboration with Vitakey will explore how we can further unlock the benefits of our probiotic strains. Our goal is to design dairy products that incorporate targeted and time-controlled release of specific dairy nutrients in a way that locks in the freshness for longer and allows the nutrients to be more active and beneficial in the body.”

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VitaKey specialises in precision delivery of nutrition – an emerging area of research that seeks to deliver the right nutrients, in the right amount, to the right part of the body at the right time.

Co-founded by Dr Robert Langer, the VitaKey delivery technology platform for nutrients is based on technology licensed from the Massachusetts Institute of Technology and developed at the Langer Lab, the largest academic biomedical engineering lab in the world.

Utilising VitaKey’s proprietary technology and customised solutions, Fonterra is looking to design dairy products that incorporate targeted and time-controlled release of specific dairy nutrients, starting with probiotics, in a way that locks in the freshness for longer and allows the nutrients to be more active and beneficial in the body.

Judith Swales, CEO for Fonterra’s Asia Pacific region, says the collaboration is part of Fonterra’s long-term strategy and ambition to be a leader in dairy innovation and nutrition science.

“Our Co-op has a long and proud heritage of dairy innovation, pioneering many world firsts and, increasingly, new solutions which aim to help people live healthier and longer lives.

“Home to one of the largest dairy culture libraries in the world, our Research and Development Centre contains more than 40,000 strains. Two of these strains, LactoB 001 and BifidoB 019, address key health concerns such as digestive issues and immunity and are recognised as being in the top five global probiotics.

“By partnering with VitaKey, we aim to ‘make nature better’ by combining the goodness of our New Zealand milk with VitaKey’s technology. In this way, we can really drive our Active Living business by appealing to the growing health and wellness consumer segment that desire the maximum functional benefits from food and are motivated by scientific credibility.

“Because the nutrients are encapsulated and highly targeted, it also means we can use less milk in our production, making our milk go further while reducing food waste,” says Ms Swales.

The first step in the collaboration aims to stabilise probiotics and deliver them to the digestive tract. This will leverage related MIT technology developed in the Langer Lab that NASA may use to deliver probiotics to astronauts in their planned mission to Mars.

VitaKey’s founder, Dr Robert Langer, has extensive experience in commercialising science, resulting in more than 40 biotech companies with an estimated market value of $250 billion. The VitaKey delivery platform has already been shown to preserve and enhance 11 different micronutrients, including Vitamin D, A, B12, and C as well as iron, zinc, niacin, and folic acid. Fonterra intends to leverage the VitaKey technology across a range of micronutrients, such as Vitamin D, and introduce them into its products.

Dr Langer, who oversees more than 150 researchers at the Massachusetts Institute of Technology, says that the technology can be customised for every link of the food supply chain.

Dr Langer’s vision for Fonterra and VitaKey working together is “to do something that really can change the world, rather than something incremental.” He is excited to collaborate with Fonterra to help further unlock dairy’s nutrition.

“The Covid pandemic has underscored the need for solutions to enhance health and wellness and boost the immunity of men, women and children at every stage of life. We believe that good nutritious food can help people of all ages lead healthier lives,” he says.

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Dr Judith Bryans, chief executive of Dairy UK said of the agreement: “Make no mistake, this trade deal is a blow for UK dairy. This Agreement will see tariffs eliminated over five years and with its lower production costs, New Zealand will be able to seize its opportunity to grow an unlimited market share for its dairy products here in the UK.

“While true this agreement comes with export opportunities for agriculture and UK dairy companies, the UK market is many times bigger than that of New Zealand and offers more opportunities to the agricultural sector there.

“At a time when the UK dairy sector is, quite rightfully, challenging itself to continuously raise its own sustainability credentials, when it is already one of the most sustainable in the world, this deal – like the one with Australia – will reduce our control over the environmental footprint of UK food consumption.

“There’s absolutely no reason to assume this won’t continue to happen in further trade agreements either.

“In its haste to strike agreements, UK agriculture is being left vulnerable and massively undervalued compared to other domestic sectors of the economy. Long term, there’s a real risk that British agriculture will shrink, gambled away for little return. We could become overly dependent on imports as a result of a shrinking ag sector, with domestic food production capabilities undermined.

“Once these businesses are gone, it will not be easy to rebuild them. We are not opposed to trade deals; we welcome mutual opportunities, but we are opposed to agricultural being traded away.

“When countries like the US do trade deals, they have an inclusive and collaborative approach with their own industry. We’d like to see a similar inclusive approach being taken here, and for government to engage agriculture and industry in a meaningful and authentic way.

“We hope that all members of Parliament will stand up for domestic producers and businesses in scrutinising this deal and future ones, to make sure these deals are fair and mutually beneficially for all sectors.”

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