Wednesday, 09 September 2015 08:34

‘Retailers’ revenge’ could slow dairy recovery

Written by 

While wholesale milk prices may be on their way up, we need to be aware of “retailers’ revenge” says a food marketing specialist.

Lincoln University agribusiness and food marketing programme director Nic Lees says two things need to happen for the market prices to recover to anywhere near previous levels.

“Retail prices need to fall to stimulate consumer demand and global supply needs to be reduced. Both of these take some time to occur.

“We are starting to see the milk tap being turned off with farmers’ globally selling cull cows and reducing supplement, and plans for future expansion and conversion are being put on hold.”

Lees says low prices are hurting farmers everywhere; recently German dairy farmers drove tractors up to the Bavarian State Chancellery to protest low milk prices.

However, he says, over the last six months retailers in New Zealand and internationally have been recovering from the squeezed margins that occurred in 2013 when wholesale milk powder prices were high at over NZ$ 8000/tonne. Many manufacturers with retail brands, and the retailers, were losing money over this period.

“They are now trying to recoup their losses (with lower, but rising wholesale prices) by holding the retail price, and their margin, for as long as possible, slowing a rise in demand. This is why consumers haven’t seen a major fall in the price of dairy products in the supermarket yet.

“When commodity (wholesale) prices are high producers of consumer branded products tend to suffer. When prices fall they exact their revenge by holding retail prices for as long as possible to recoup the losses.”

Consumer prices are only just starting to fall so it will take some time for consumers to start drinking more milk, and consuming more cheese, yoghurt and other products, Lees says.

New Zealand is vulnerable to commodity price swings.

He says the country needs a portfolio of dairy exports that include more value-added products such as nutritional powders and consumer ready dairy product exports, like ice cream and UHT milk, as these tend to follow different cycles.

“At the moment we are still heavily weighted to commodities. Fifty per cent of our dairy exports [are] whole milk powder. We need to encourage the development of truly branded businesses.”

Lees says New Zealand lacks experience in developing global food brands, an area in which we need to develop capability. Companies like Nestlē have had over 100 years of experience developing brands in some of the toughest markets in the world.

In the same way as the Government has supported and promoted the New Zealand tourism industry, it also needs to help our food industry to market and promote New Zealand products to international consumers, he adds.

More like this

Markets resilient, farmers hopeful

OPINION: The global dairy market continues to show resilience, and farmers remain cautiously optimistic as we move into the latter half of 2025.

$10,500 for future ag leaders

The future of New Zealand’s agricultural sector grew a little brighter, with the South Island Agricultural Field Days (SIAFD) now accepting applications for its scholarships through Lincoln University, offering $10,500 to up to six exceptional students who are poised to become the next leaders in the primary industries.

Featured

Fencing excellence celebrated

The Fencing Contractors Association of New Zealand (FCANZ) celebrated the best of the best at the 2025 Fencing Industry Awards, providing the opportunity to honour both rising talent and industry stalwarts.

B+LNZ launches AI assistant for farmers

Beef + Lamb New Zealand has launched an AI-powered digital assistant to help farmers using the B+LNZ Knowledge Hub to create tailored answers and resources for their farming businesses.

National

Machinery & Products

JDLink Boost for NZ farms

Connectivity is widely recognised as one of the biggest challenges facing farmers, but it is now being overcome through the…

New generation Defender HD11

The all-new 2026 Can-Am Defender HD11 looks likely to raise the bar in the highly competitive side-by-side category.

» Latest Print Issues Online

Milking It

Buttery prize

OPINION: Westland Milk may have won the contract to supply butter to Costco NZ but Open Country Dairy is having…

Gene Bill rumours

OPINION: The Gene Technology Bill has divided the farming community with strong arguments on both the pros and cons of…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter