16 May 1997

New Zealand reveals secrets of its success

VERTICAL integration is the key to success in an intensely competitive global dairy market.

That was the message from head of the New Zealand Dairy Board, Sir Dryden Spring, to producers at this weeks Competitive Dairying Beyond 2000 conference in Palmerston North, New Zealand.

"The strength of the New Zealand dairy industry is its vertical integration from cow to customer, with the whole industry focused on maximising total farming profitability," he told the conference.

And while he recognised that farmers were essentially "price takers", the further down the food chain they could retain control, the more the value of their milk could be influenced. "Co-operation provides bargaining power, resources, scale and the ability to develop global strategies that smaller businesses could not achieve," said Sir Dryden.

Currently the whole of the New Zealand dairy industry is co-operatively owned by farmers. If it were allowed to fragment that would introduce different profit objectives, leading to a lack of customer focus and less commitment to adding value throughout the food chain, he warned.

It would also leave the New Zealand industry vulnerable in an international dairy market dominated by "massive international food companies and discriminating foreign governments and taxpayers".

Future development of New Zealand exports will focus on consumer products rather than commodities, said the NZDBs Chris Kelly. Commodities currently account for 60% of the countrys overseas dairy trade. But consumer products sales are expected to grow at up to 20% a year, especially in south-east Asia and Latin America.

This should sustain a steady expansion of the New Zealand dairy industry at a targeted 2-3% a year. But the current growth rate of 7% a year is not sustainable, he added.n

Stephen Bates