fbpx
Print this page
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

MOU a significant milestone

The signing of a Memorandum of Understanding (MOU) between Lincoln University and Ballance Agri-Nutrients is being hailed as a significant milestone.

Rural resilience programme expands

Mental health and resilience programme WellMates is available at Massey University for a second year after research found that it has significantly benefitted participants.

Study puts value on food safety research centre

A new study from Lincoln University’s Agribusiness and Economics Research Unit (AERU) has put a valuation on the NZ Food Safety Science & Research Centre in terms of its value to New Zealand.

Featured

Dairy sheep and goat turmoil

Dairy sheep and goat farmers are being told to reduce milk supply as processors face a slump in global demand for their products.

Hurry up and slow down!

OPINION: We have good friends from way back who had lived in one of our major cities for many years.

Editorial: Passage to India

OPINION: Even before the National-led coalition came into power, India was very much at the fore of its trade agenda.

National

Govt urged to reduce ETS units

The Climate Change Commission wants the new Government to reduce NZ Emissions Trading Scheme (ETS) auction volumes as son as…

Dairy sheep, goat woes mount

Dairy sheep and goat farmers are being told to reduce milk supply as processors face a slump in global demand…

Machinery & Products

All-terrain fert spreading mode

Effluent specialists the Samson Group have developed a new double unloading system to help optimise uphill and downhill organic fertiliser…

Can-Am showcases range

Based on industry data collected by the Motor Industry Association, Can-Am is the number one side-by-side manufacturer in New Zealand.