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Skyrocketing Milk Prices and Butterfat Levels Boost Earnings

Find out how rising milk prices and high butterfat levels are driving up dairy farmers’ profits. Want to know the latest trends and stats? Read our in-depth analysis.

Summary: Have you been keeping an eye on your dairy margins lately? If not, you might be in for a pleasant surprise. August has brought about some noteworthy improvements for dairy farmers, particularly those who have invested wisely in their marketing periods. Profitability has seen a much-needed boost, with milk prices soaring and feed costs holding steady. Curious about the specifics? Let’s dive into the cheese market, where block and barrel prices have hit their highest since October 2022, driven by a drop in cheddar cheese production. This tightening of spot supplies has resulted in firmer prices and unique challenges and opportunities for dairy farmers. And there’s more—while milk production is down, butterfat levels and butter production are smashing records. Cheese production in June dropped 1.4% from the prior year to 1.161 billion pounds, with cheddar production down 9% from 2023 and marking the eighth consecutive monthly decline. This allows dairy producers to capitalize on these quality advances while navigating the challenges of decreased milk quantities. But it’s not just about dairy: changes in crop yields for corn and soybeans also influence feed costs, shaping the broader landscape of your financial well-being. According to the USDA’s August WASDE report, lower soybean meal prices may benefit dairy businesses as feed is a substantial expenditure. In conclusion, higher milk prices and stable feed costs have created an optimistic scenario for dairy margins. The recovery in the cheese market and rising butterfat levels in the face of decreased milk output present complex but attractive options. Dairy producers must be vigilant and respond promptly to changing circumstances, as historically high margins provide ample space for increased profitability.

  • Dairy margins saw improvement in early August due to higher milk prices and steady feed costs.
  • Block and barrel cheese prices reached their highest since October 2022, mainly due to reduced cheddar cheese production.
  • Cheese production in June 2023 fell 1.4% from the previous year, with cheddar production down 9%.
  • Butterfat levels and butter production are at record highs despite the decline in milk production.
  • USDA’s August WASDE report indicates lower soybean meal prices, potentially reducing feed costs for dairy farmers.
  • The current favorable conditions in milk prices and feed costs offer a chance for higher profitability in the dairy industry.
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Have you observed any recent changes to your milk checks? You could be wondering why your earnings have suddenly improved. Well, it’s not all luck. Dairy margins have increased considerably in the first half of August, owing to rising milk prices and record butterfat levels. This increase boosts profitability and provides a much-needed respite from the constant feed expenses. But what is truly driving this favorable shift? Let’s go into the specifics and examine how these changes affect the dairy industry.

Surging Milk Prices and Steady Feed Costs: A Recipe for Improved Dairy Margins 

The dairy market is navigating a complicated terrain full of difficulties and opportunities. Dairy margins improved significantly in the first half of August, primarily due to rising milk prices. Due to solid cheese market dynamics, dairy producers are better positioned as CME Class III Milk futures rise. Even though feed prices have stayed consistent, this constancy has been critical in increasing profitability. The rise in milk prices and steady feed costs provide a balanced equation that improves total margins, allowing farmers to run their businesses more successfully despite continued problems.

Have You Noticed What’s Happening in the Cheese Market? It’s Been Quite a Ride Lately. 

Have you observed what’s going on in the cheese market? It’s been quite the trip lately. The CME Class III Milk futures have gained dramatically owing to a strong cheese market. Last week, block and barrel prices at the CME reached record highs not seen since October 2022. This increase is primarily due to a decline in cheddar cheese output, which has reduced spot supply and caused prices to rise in recent weeks.

Cheddar output, in particular, has been declining steadily, down 9% since 2023. This is the sixth straight monthly decline. Several variables contribute to this tendency, including high temperatures and persistent herd health difficulties associated with the avian flu pandemic. These factors have produced a perfect storm, drastically reducing cheddar yield.

Consequently, lower output has resulted in tighter spot supply and higher pricing. The drop in cheese output adds another layer of complexity to the market, making it critical for dairy producers to remain knowledgeable and adaptable. Are you ready for these upheavals in the cheese market?

Did You Know? Rising Butterfat Levels Amid Declining Milk Production 

Did you know that, although total milk output has decreased, butterfat levels in milk have increased significantly? This may appear paradoxical at first look, yet it is correct. Butterfat percentages have reached all-time highs, regularly outperforming previous year fat tests since June 2020. What drives this phenomenon?

While overall U.S. milk production is down 0.9% year over year through June, the lowest level in four years, the quality of the milk produced is impressive. Butter output in June increased by 2.8% from the previous year to 169.15 million pounds due to rising butterfat content, demonstrating the industry’s flexibility and resilience.

This increase in butterfat levels has given a silver lining among the difficulties. With butterfat percentages at an all-time high, dairy producers may capitalize on these quality advances while navigating the challenges of decreased milk quantities. This potential maximizes profitability and efficiency in processing, guaranteeing that each drop of milk produces the best possible return. The rise in butterfat levels enhances the quality of dairy products and provides an opportunity for dairy producers to adjust their production strategies to maximize profitability.

Ever Considered How Crop Yields Influence Your Feed Costs?

Let’s take a quick look at feed expenses and crop yields. Have you looked at the USDA’s August WASDE report? It’s quite an eye-opener! They have increased yield and production predictions for maize and soybeans. But what does this imply for us in the dairy farming industry?

For openers, predicted corn-ending stockpiles have decreased marginally. This is mainly owing to fewer harvested acres and increased predicted demand. Less maize will be available, which may keep feed prices flat or raise them somewhat.

Conversely, since July, soybean ending stockpiles have risen dramatically by 135 million bushels. This spike has placed downward pressure on soybean meal costs, giving your feed budget some breathing space. Lowering soybean meal prices may be beneficial since feed is a substantial expenditure for dairy businesses. How will you modify your feeding plan in light of these changes?

The Bottom Line

As previously discussed, higher milk prices and stable feed costs have produced an optimistic scenario for dairy margins. The current recovery in the cheese market and rising butterfat levels in the face of decreased milk output present complicated but attractive options. These options include adjusting production strategies to focus on high-butterfat products, optimizing feed plans to take advantage of changing crop yields, and closely monitoring market dynamics to make informed pricing decisions. Furthermore, shifting crop yields influence feed costs, emphasizing the need for strategic planning.

Dairy producers must be watchful and respond promptly to these changing circumstances. With historically high margins, there is plenty of space to strategize for increased profitability. How will you take advantage of these large profit margins? What techniques will you use to optimize your profits? We encourage you to share your strategies and learn from each other, as the answers to these questions guide your dairy operation’s future success.

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Banks vs. Fonterra: Why New Zealand’s Biggest Milking Industry Isn’t What You Think

Find out why New Zealand’s real money-makers are the banks, not Fonterra. Want to know how financial institutions are earning more than dairy farms? Keep reading.

When examining New Zealand’s primary industries, Fonterra is often cited as a typical example of agricultural strength, boosting exports and greatly enhancing national GDP. Nonetheless, a more muted “milking” method flourishes in the urban cores of financial hubs rather than on the lush pastures. New Zealand’s economy’s actual “milkers” are the banks, not Fonterra. Although dairy farming is lauded for its financial rewards, the financial sector’s tactics are as, if not more, significant. Banks use lending strategies, interest rates, and other fees to extract income from all levels of society, from large corporations to individuals. This fact warrants careful consideration, especially considering the significance of financial literacy.

Fonterra: A Pillar of New Zealand’s Economic and Agricultural Landscape 

Fonterra is the largest dairy company in New Zealand and a significant global player. It was formed in 2001 by merging the New Zealand Dairy Group, Kiwi Cooperative Dairies, and the New Zealand Dairy Board. Fonterra handles thirty percent of all dairy exports globally. Almost 10,000 farmers own it, which is critical to New Zealand’s agricultural economy, directly contributing more than 3% of GDP.

Fonterra employs thousands and offers processing, packaging, and shipping. Its effect extends to over 140 countries, creating billions in export revenue. Fonterra ensures New Zealand’s continued dominance in the dairy sector and raises its global prominence via strategic collaborations and new dairy technology. From milk powder to nutritional formulas, its diverse product portfolio reflects its commitment to quality and sustainability—both locally and globally.

The Oligopoly of New Zealand’s Banking Sector 

The four core Australian-owned banks that dominate the New Zealand banking industry are ANZ, ASB, Westpac, and BNZ. Together, these institutions control over 85% of all bank lending in the nation, forming an oligopoly with significant influence over the financial landscape. This dominance influences interest rates, loan conditions, and banking fees, impacting the economy as a whole.

ANZ, the biggest of these banks, with a net profit of $2.8 billion in the most recent fiscal year. It continuously leads the market in lending and deposits, utilizing its size to provide competitive yet profitable interest rates and fees. ASB follows closely, with billions of dollars in revenues from digital banking services and a significant mortgage portfolio. Westpac and BNZ also record multibillion-dollar profits, concentrating on long-term fixed loans to ensure consistent income and client loyalty.

The combined profits of these institutions demonstrate their financial strength. In 2024, the sector’s revenue was $59.96 billion, supported by fees that, despite criticism, offer steady cash flow. Their dominance in digital banking strengthens their position, providing ease to clients while lowering overhead expenses for banks.

These financial behemoths hold considerable power throughout New Zealand’s economic environment. Their strategic lending strategies and sophisticated digital infrastructure allow them to operate with more financial agility, increasing their market impact. They are the leading financial institutions in New Zealand, outperforming even huge agricultural cooperatives like Fonterra in terms of economic effect and profitability.

Financial Titans: Fonterra vs. The Banking Sector – A Comparative Analysis 

When comparing New Zealand’s financial behemoths, Fonterra and the banking industry stand out. Fonterra, a cooperative dairy firm, generates money from dairy products. The collaborative approach capitalizes on group output, resulting in considerable worldwide revenues. Fonterra’s income is derived directly from selling milk, cheese, butter, and other products, which drives a yearly billion-dollar export business. Banks earn from interest rate differentials, service fees, and better digital banking. This diverse strategy increases earnings by lowering operating expenses.

Analyzing their profit margins shows a fascinating contrast. The banking industry has constant margins owing to diverse income and long-term assets such as mortgages, which account for 63% of their lending. This constancy in profit margins reflects banks’ financial stability, which is crucial for preserving customer trust. Fonterra’s margins are unpredictable due to global dairy pricing and environmental considerations. While Fonterra may be lucrative, it confronts significant risks and uncertainties that banks, with their consistent income base, often avoid.

From an economic standpoint, both are important, but they function differently. Fonterra has a tremendous impact on rural areas and New Zealand’s export economy. On the other hand, banks serve as the financial ecosystem’s foundation by supporting corporate, consumer financing, and housing markets. They are crucial in ensuring financial stability and economic prosperity, deeply ingrained in the New Zealand economy. This role of banks in encouraging economic growth provides a cause for optimism about New Zealand’s financial future.

Milking Consumers: The Financial Gains of Banks Compared to Fonterra’s Production-Based Model 

In this context, ‘milking’ refers to extracting financial advantages that primarily benefit banks while imposing considerable economic penalties on customers. While the word is often linked with dairy farming, it is a metaphor for how banks employ multiple processes to make large profits. This ‘ milking’ occurs via excessive interest rates on loans and credit cards, resulting in significant long-term expenditures for borrowers. Furthermore, banks charge additional fees for account maintenance, overdrafts, and international transactions, which adds to clients’ financial burdens.

In sharp contrast, Fonterra’s business strategy is focused on dairy production, processing, and exportation. Their earnings are generated via the production and sale of physical things, consistent with conventional industrial and agricultural operations. Fonterra’s revenue is based on physical outputs, whereas banks earn from leveraging financial instruments and consumer reliance on credit facilities. This contrast exposes the exploitative aspects of the banking industry’s profit plans with the value-added strategy of New Zealand’s top dairy cooperative.

Human Faces Behind the Numbers: The Struggles of Ordinary Consumers in New Zealand’s Banking Maze 

John and Mary, a couple from Wellington, confronted the painful reality of increasing mortgage rates. Their relatively competitive house loan from 2019 experienced a significant increase in interest rates within two years, as stated in the small print of their agreement. This increased their monthly payments by hundreds of dollars, requiring them to cut down on spending. They are not alone: around 63% of bank lending in New Zealand is related to long-term, often variable mortgages that put pressure on households.

A small company owner, Fiona, found ‘hidden fees’ on her bank accounts concealed in convoluted terminology. These costs added up over three years, restricting her company’s development. Fiona’s example demonstrates how more New Zealanders should know their banking practices.

In 2020, an investigation revealed that central banks in New Zealand were charging secret foreign currency markup fees. Tom, an expatriate who remitted money to the UK, unwittingly paid more due to these concealed markups, which cost him hundreds of pounds over the year. Banks use opaque transaction tactics to milk customers without informed permission.

A Tale of Two Titans: Fonterra’s Community Roots vs. Banking’s Corporate Profits 

A complicated picture emerges of the economic effect of New Zealand’s banking industry. The growth of mortgage loans—49% to be re-priced within a year and 23% fixed for lengths of more than two years—emphasizes the structural burden on homeowners. This financial uncertainty, worsened by fluctuating interest rates, dramatically strains families. With 11% of mortgages floating, economic shocks may quickly worsen family financial troubles.

In contrast, Fonterra’s economic contribution is based on production and employment. It employs about 29,000 people and significantly contributes to the rural and urban economies. The cooperative’s export income supports local development and agricultural communities. Fonterra remains an essential economic driver despite shifting dairy prices and environmental concerns.

Meanwhile, the banking sector’s earnings rose to $6.91 billion, highlighting a worrying imbalance. While banks build money for shareholders and executives, regular Kiwis confront financial difficulties. This contrast between Fonterra’s community-focused strategy and the banks’ profit maximization paints a striking picture of New Zealand’s economic reality. It’s a world characterized by people’s daily suffering juxtaposed against financial organizations’ riches.

Perception vs. Reality: How Media Narratives Shape the Stories of Fonterra and NZ Banks

Fonterra and the banking industry are giants in New Zealand, yet their public impressions and media representations are vastly different. Fonterra, regarded as a national pride emblem, is admired for increasing the GDP and assisting thousands of farmers. Despite occasional references to environmental consequences and shifting milk costs, the media often highlights the company’s sustainability and community activities.

In contrast, the banking industry, which Australian corporations predominantly dominate, is under increased scrutiny. It is often seen as favoring business over people, with criticism for exorbitant fees, digital difficulties, and squeezing mortgage holders. While banks offer critical financial services and credit, concerns over profit margins and lending practices typically overshadow these benefits.

The perceived gap between these industries affects public opinion and legislation. Fonterra’s strong image strengthens its lobbying power, resulting in more favorable legislation and government backing. In contrast, banks’ unfavorable image encourages public support for tighter restrictions, influencing their operations and profitability.

Thus, whereas Fonterra benefits from national symbolism, banks face a contested image, with media depiction influencing their regulatory and economic environments.

Regulatory Stewardship: Balancing Stability and Fairness in New Zealand’s Banking and Dairy Sectors 

The regulatory framework in New Zealand’s banking and dairy industries is vital for ensuring stability and fairness. The Reserve Bank of New Zealand (RBNZ) supervises the banking industry and enforces prudential requirements to maintain systemic stability. Recent measures like higher capital requirements are intended to insulate the banking sector against financial shocks. Proposed changes aim to improve openness and accountability, reduce risks, and protect customers.

In contrast, the Ministry for Primary Industries (MPI) oversees the dairy sector to ensure product quality, environmental sustainability, and biosecurity. Fonterra, the most significant participant, follows the Dairy Industry Restructuring Act (DIRA), which regulates milk supply and price. Amendments to DIRA promote competition and innovation among smaller dairy farmers.

Both industries have seen extensive government involvement to safeguard consumers from market abuses. The Financial Markets Authority (FMA) supervises the banking industry’s capital markets and financial services, and environmental rules for dairy address the industry’s ecological effect. The dual emphasis highlights the comprehensiveness of New Zealand’s regulatory regimes.

The Bottom Line

The banking industry, not Fonterra, is the true driving force in New Zealand’s economy. While Fonterra is important in agriculture for increasing GDP and creating employment, banks significantly influence the financial well-being of average Kiwis. The banking sector, dominated by heavyweights such as ANZ, BNZ, ASB, and Westpac, controls more than 70% of industry income and directly impacts customers. Fonterra’s community-focused operations are in stark contrast to banks, which prioritize corporate profits above customer interests, leaving many New Zealanders with exorbitant mortgage rates and financial insecurity due to banking regulations. Regulatory measures are critical for maintaining stability and fairness in both industries. The narrative that portrays Fonterra as the vital economic beneficiary has to be reevaluated. Banks tremendously impact our financial well-being and should be scrutinized more closely due to their enormous economic ramifications. It’s more than just supporting local dairy; it’s about confronting established practices that affect our financial health. By creating a more educated worldview, we can advocate for fairer policies and legislation prioritizing people above profits. It’s time to identify the true milkers and demand better.

Key Takeaways:

  • Banks in New Zealand derive substantial profits from financial services, overshadowing the agricultural industry’s earnings.
  • The narrow banking sector oligopoly leverages market power, impacting consumers with higher fees and interest rates.
  • Despite Fonterra’s significant contributions to the economy, its community-centric approach contrasts starkly with banks’ profit-driven motives.
  • Ordinary New Zealanders face financial strain from banking practices, highlighting the need for more consumer-friendly regulations.
  • Media narratives often obscure the real economic impacts of banking profits versus agricultural revenues.
  • Regulatory efforts must balance the economic stability provided by banks with the fairness required for consumer protection.

Summary:

Fonterra, New Zealand’s largest dairy company, handles 30% of global dairy exports and contributes over 3% to the country’s GDP. Owned by nearly 10,000 farmers, Fonterra employs thousands and offers processing, packaging, and shipping services to over 140 countries. The company ensures dominance in the dairy sector through strategic collaborations and new dairy technology. The four core Australian-owned banks, ANZ, ASB, Westpac, and BNZ, control over 85% of bank lending in New Zealand, forming an oligopoly with significant financial strength. The sector’s revenue was $59.96 billion in 2024. Fonterra generates money from dairy products, while banks earn from interest rate differentials, service fees, and digital banking. The banking industry in New Zealand is complex and controversial, driven by long-term, variable mortgages. Regulatory stewardship is crucial for stability and fairness in both sectors.

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Australian Dairy Industry Worries Over Fonterra’s Local Business Sale: Market Consolidation Concerns Emerge

Find out why Fonterra’s sale of its Australian dairy business is raising worries about market consolidation. What will this mean for local farmers and consumers? Read more.

Fonterra’s decision to sell its consumer brands is a significant event that is reshaping the global dairy industry, including the Australian sector. This strategic shift, which prioritizes B2B and ingredients despite the consumer division’s financial success, has raised concerns among local stakeholders about market concentration and its potential impact on Australian dairy producers and consumer choices.

As the Business Council of Cooperatives and Mutuals (BCCM) stated: 

“The announcement by Fonterra that it intends to sell its Australian dairy processing assets is yet another blow to dairy farmers and a reminder about the precarious nature of our food security when staples like milk are passed around like commodities.”

Key concerns include: 

  • Market consolidation reduces competition and local control.
  • Pressure on farm gate prices, possibly forcing farmers out of the market.
  • The risk of a supermarket duopoly, limiting consumer choices and raising prices.

The issues at hand underscore the pressing need to promptly reassess market dynamics. This is crucial to secure the long-term sustainability of Australia’s dairy industry, a vital part of our nation’s economy and food security.

Fonterra’s Strategic Pivot: Divesting Consumer Brands to Strengthen B2B and Ingredients Focus

One of the major players in world dairy, Fonterra, is changing its approach to concentrate on its B2B and ingredients division. Selling well-known consumer brands, including Anlene, Anchor, and Fernleaf—despite their gross earnings in FY2023 of NZ$781 million (US$481.9 million—this move entails selling these companies notwithstanding Revenue sources indicates another tale, though the consumer sector accounted barely 7% (NZ$3.3 billion / US$2.4 billion). The food service industry brought 13% of total income (NZ$3.9 billion / US$2.4 billion). Comprising 80% of revenue and producing NZ$2.6 billion (US$1.6 billion) in gross profits, the ingredients industry dominated. Aiming to simplify processes, emphasize core competencies, and react to consumer and food service asset interests, this strategy change is meant to streamline operations.

Financial Data Illuminates Fonterra’s Strategic Shift 

Fonterra’s latest financial results support their strategy change. From a modest 7% of sales, the consumer division brought in NZ$781mn (US$481.9mn) in gross profits in FY2023. With nearly 13% of sales (NZ$3.9 billion/US$2.4 billion), the food service industry produced NZ$749mn (US$462.2mn) in gross profits. With 80% of total sales (NZ$17.4bn/US$10.7bn), the ingredients business led with gross earnings of NZ$2.6 billion (US$1.6 billion).

Substantial consumer and food service revenues nonetheless indicate Fonterra’s main strength—that of ingredients. Fonterra wants to improve long-term value by concentrating on its best-performing channels—ingredients and food service—involving Unwanted interest in areas of its company also drives the choice; this is a perfect moment for disposal to reallocate funds and improve its principal activities.

Fonterra’s Comprehensive Global Strategy: Streamlining Operations with a Focus on B2B and Ingredients

With its intentions to leave the Australian market and divestiture of consumer brands in Sri Lanka, Fonterra’s new approach centers on its B2B and ingredients business and CEO Miles Hurrell pointed out shedding companies including Anlene, Anchor, and Fernleaf, “While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfill Fonterra’s core function of collecting, processing and selling milk.”

Hurrell clarified the strategy turnaround: “More value would come from focusing our Ingredients and food service channels and freeing money in our Consumer and related companies. Disposing these businesses would enable a more straightforward, better-performing Co-op with an eye on our core Ingredients and food service sector. We have also had an unwanted interest in several of these companies; hence, this is a good moment to review their ownership.

Aiming to strengthen its presence in the worldwide market, where B2B and ingredient categories offer more profitable prospects, the divestments in Sri Lanka and Australia are part of a bigger plan to maximize operational efficiency and capital allocation.

Concerns Over Consolidation: Potential Ripple Effects on the Australian Dairy Market 

The local dairy industry is alert about how Fonterra’s divestiture may affect the Australian market. Rising market consolidation especially worries the Business Council of Cooperatives and Mutuals (BCCM). They contend this would concentrate dairy asset ownership within a small number of powerful companies, therefore lowering competition.

BCCM cautions that this consolidation might harm dairy producers by lowering their bargaining strength at the farm gate. When market power centers on one entity, farmers may be pressured to accept reduced milk prices to meet shareholder profits. This might threaten smaller, independent farms, compromising the industry’s variety and resilience.

Customers might also experience this. Price increases at retail establishments run the danger given that fewer businesses manage processing and distribution. BCCM observes that this could result in fewer options and more expensive essential dairy products.

The possible loss of local authority over dairy assets raises even another issue. Emphasizing more profitability than community and farmer wellbeing, BCCM notes that foreign and corporate ownership may eclipse local interests.

BCCM supports increased primary producer participation in the value chain to offset these risks. They see cooperatives as essential for giving dairy farmers the negotiating strength they need to flourish in Australia’s mostly deregulated and export-oriented market. Supporting cooperatives helps the industry protect its stability and sustainability against the forces of market concentration.

Potential Consequences of Fonterra’s Australian Asset Divestment: Market Concentration and Its Ripple Effects 

Fonterra’s choice to sell its Australian consumer businesses begs questions about further market concentration. Like the supermarket duopoly in New Zealand, this action may result in a few powerful companies controlling the market. Such consolidation may marginalize independent, small dairy farms and processors, lowering their market impact.

Two big supermarket chains’ dominance in New Zealand caused an imbalance in negotiating strength, which drove down farm gate pricing and compressed profits for local dairy producers. Should this happen in Australia, some farmers may be driven out of the sector by cost constraints and declining profitability. Therefore, Farmers and customers would be affected by this, influencing product diversity, price, and market rivalry.

The regulatory clearance for Coles’ purchase of Australian Saputo processing facilities points toward retail ownership over processing becoming the norm. Should this continue, milk manufacturing may merge even more into retail chains, emphasizing cost over innovation or quality, which would reduce market dynamism.

Encouraging the adoption of robust cooperative models is not just a solution but a beacon of hope in the face of these challenges. These models have the potential to empower Australian dairy producers, increasing their share in the value chain and enhancing their negotiating strength. By promoting a cooperative approach, we can help the sector maintain the diversity and resilience of the Australian dairy market and mitigate the potential negative consequences of market concentration.

Future Pathways: Strengthening Dairy’s Horizon Amid Consolidation Concerns 

The choices Australia’s dairy sector must make now will determine its direction. Thanks to increased consolidation, larger companies might be able to dominate, perhaps pushing out smaller farms and lowering competition. However, consumer choices and farm gate pricing may suffer from this change.

Still, a different route highlights how cooperatives strengthen leading producers. The collective negotiating strength provided by cooperatives guarantees a fairer market, more balanced pricing, and equitable profit distribution. Participating in the whole value chain—from manufacturing to distribution—improves farmers’ economic resilience and negotiation power against more powerful companies.

Moreover, cooperatives may promote sustainable agricultural methods that match environmental and financial objectives. Establishing a robust cooperative movement within the Australian dairy industry guarantees food security, variety, and quality for customers, as well as stability and protection of livelihoods.

Using co-ops and including primary producers in the value chain will determine the industry’s destiny. These tactics may let the dairy industry negotiate consolidation difficulties and emerge stronger and fairer globally.

The Bottom Line

Fonterra’s calculated choice to sell their consumer brands and concentrate on B2B and ingredients represents a significant change. This action seeks to simplify basic procedures even if consumer sector financial performance is excellent. However, the Australian dairy sector has expressed worries about market concentration. Essential concerns include:

  • Possible consumer price increases.
  • Effects on nearby dairy farms.
  • The possibility of a retail duopoly pressuring farm gate pricing.

Examining this divestiture process closely is vital if we safeguard industry stability and advance cooperative models that empower farmers in the value chain. Maintaining the interests of every Australian dairy industry stakeholder depends on a balanced, competitive market.

Key Takeaways:

The recent strategic pivot by Fonterra, which involves divesting its consumer brands to concentrate on its B2B and ingredients business, has raised significant concerns within the Australian dairy sector. The decision, influenced by various financial metrics, is seen as both a commercially sound move for Fonterra and a potential risk for market consolidation in Australia. 

  • Fonterra plans to divest its consumer brands such as Anlene, Anchor, and Fernleaf globally.
  • The decision follows a strategy shift to focus on B2B and ingredients business despite strong performance in the consumer sector.
  • FY2023 data reveals that the consumer business generated NZ$781mn in gross profits, surpassing the foodservice business.
  • The ingredients business remains the largest revenue contributor, making up 80% of total revenue.
  • Fonterra’s exit from the Australian market includes divestment of its consumer, foodservice, and ingredients businesses.
  • Concerns have emerged within the local dairy sector regarding market concentration and its impact on dairy farmers and consumers.
  • Australia’s Business Council of Co-operatives and Mutuals (BCCM) highlights the potential for increased market dominance by large business interests and its implications on farm gate prices.
  • There is a growing sentiment that co-operatives may be a key solution to maintaining bargaining power for dairy farmers.

Summary:

Fonterra is reshaping the global dairy industry, including the Australian sector, by focusing on its B2B and ingredients division. This strategic shift has raised concerns about market concentration, potential impact on Australian dairy producers, and consumer choices. The Business Council of Cooperatives and Mutuals (BCCM) criticized the announcement, stating that market consolidation reduces competition, local control, pressures farm gate prices, and risks a supermarket duopoly. Fonterra’s financial results show that the consumer division generated only 7% of total income in FY2023. The ingredients industry dominated, accounting for 80% of revenue and $2.6 billion in gross profits. The Australian dairy industry is concerned about Fonterra’s divestiture, which could lead to market consolidation and lower competition. BCCM supports increased primary producer participation in the value chain.

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