Moving up the value chain

McLean told Dairy News that Fonterra, other dairy companies and New Zealand generally, must invest more in this area of innovation. 

A lot of innovation is by small businesses with new ideas, he says, for example the recent initiative in milking sheep. A large percentage of the world population consumes sheep milk products and if New Zealanders can innovate, this industry could grow.

 “Access to capital and research funding is very important. The trouble with all these start-up ventures is their very high risk. If they have good reach or are working with an in-market customer, that can be taken into account. We are keen on innovation and supporting it so we’ll be as flexible as we can.”

Meanwhile McLean says he’s optimistic that the payout for next season will be above $6/kgMS. His only caveat on that is the possibility of lower milk volumes because of the dry weather.

“But we’re optimistic about the long term demographic trends in Asia where more people want protein in their diet. There are other clouds on the horizon such as sanctions on Russia and milk quotas in Europe coming off. There are offsetting factors so… it is worth watching carefully. We don’t see a rebound to the high payout of the previous season but we do see a solid outlook for the future.”

Speaking before last week’s fall in GDT prices, McLean says while his bank is no more an expert than anyone else, the fact that the GDT auction price has risen by 30% above its November low is encouraging. This could signal that the inventory problems of the past are starting to play out, he says.

“From a farming point of view some other conditions are very good. The cost of borrowing is about as low as in living memory so that is a big contributor to farm profitability.”

McLean says as long as dairy prices hold up there will be more dairy conversions, but factors such as the availability of appropriate land and water will be limiting. 

At some time the natural limit of dairy expansion will be reached.