New Zealand’s Greatest Economic Threat is Fonterra

Written By: - Date published: 7:00 am, August 29th, 2023 - 35 comments
Categories: Deep stuff, Economy, Environment, exports, farming, farming - Tags:

Fonterra represents New Zealand’s largest internal economic threat. And promise.

Fonterra’s milk payout is now forecast to be $6-$7 a kilo of milk solids this season. Outside of interest rate changes, that will be the single largest factor in a depression on our economy and our society.

Fonterra continues to dominate our dairy industry, and our exports.

Fonterra’s revenue at 2022 was over twice that of 18 state owned enterprises and 19 Crown owned entities put together. It has twice the revenue of New Zealand’s only other local business of international scale, Fletcher Building. It and its suppliers are the largest polluter and industrial water user in New Zealand by a country mile. Fonterra’s growth of business dwarfs all other metrics.

The threat and promise Fonterra posed to New Zealand was framed in 2015 by KPMG’s Executive Chairman thus:

Putting it bluntly, our economy is in good shape because of dairy, and in particular Fonterra, and New Zealand needs this to continue.”

In 1998 dairy was worth $4 billion to our economy, and it’s now over $20 billion. Dairy accounts for 1 in 3 of our export dollars, and Fonterra accounts for about 80% of that dairy production and export.

Fonterra as creature of the state has for twenty years required large and sustained support from the state. That support has not been reciprocated with success.

Fonterra was formed because two oligopolistic players and a dairy export regulator demanded that the state legislate their power into a near-monopoly. They convinced the Helen Clark-led Labour administration that only an entity of this scale could take on the giants of Danone, Nestle, and Kerry’s. Having gained that 2001 legislated power, Fonterra had within a decade managed to trash every promise they had made to each other, to the state, to New Zealand and to its overseas partners and customers.

Now, in 2023, New Zealand’s dairy exports are still 80% controlled by Fonterra and are completely reliant on their Chinese markets performing well.  Our economy is simply miserable for it. China’s higher-end food and infant nutrition demands are not recovering and as a result neither is New Zealand. Our environment and water system in particular is also simply miserable for it.

We are in this position because the New Zealand dairy industry begged the state for a free trade agreement with China. The Helen Clark government worked exceedingly hard to break open the burgeoning economy of China with the China-New Zealand Free Trade Agreement. What Helen Clark and Phil Goff achieved there was access for dairy producers that has not been equalled in any subsequent New Zealand free trade agreement.

New Zealand government’s gift to the new Fonterra was for the state to break open the burgeoning economy of China in 2008 with the China-New Zealand Free Trade Agreement.  This was a global first. What it provided was access for dairy producers to a massive new market on a scale that hasn’t been equalled in any other subsequent New Zealand free trade agreement.

Fonterra rewarded the Clark government with catastrophic investments that poisoned 300,000 and killed many people, and lost them hundreds of millions in written-off investment in the Melanin  disaster. Beingmate collapsed, and a full firesale of Fonterra’s international assets occurred through 2019. None of its initial promises to its shareholders to be that great global player have been kept.

The Chairman of the company left after that first set of disasters, and the Chief Executive was replaced.

The 2009 National government doubled down on the Helen Clark formation of Fonterra by rapidly funding a massive expansion of irrigated dairy country throughout the South Island in Canterbury and Otago in particular. This was spending hundreds of millions of taxpayer dollars to prop up the industry Fonterra dominated.

Then someone finally did the analysis that told the truth. Fonterra over the whole of its existence just hadn’t worked and in part was barely viable. This is set out by the Chairman of the Fonterra Shareholders Council in their independent assessment of the financial performance of Fonterra since inception. It covered 11 years of analysis.

Current National Deputy leader was employed by Fonterra as their GM Nutrient Management. She was right at the heart of Fonterra for years. National’s Todd Mueller used to be Fonterra’s head of corporate affairs.

Rather than enable the New Zealand economy to diversify, Fonterra has concentrated since 2017 on shrinking right down into a crouch, and strengthening its controlling power within New Zealand.

On the government’s final Fresh Water National Policy Statement, there were no recommendations for measurable and applicable numeric limits on nutrients vital to make the stated goal of cleaner fresh water. Fonterra through DairyNZ had lobbied the hell out of it.

The next field of concern was Fonterra’s place in New Zealand carbon pollution. This became more clearly framed once New Zealand signed onto the 2015 Paris accords.

In September 2017 the advice of James Shaw and MoE officials to bring dairy and agriculture into account for their emissions were overruled by Ardern and Cabinet.

In September 2019 170,000 people marched in New Zealand urging the government to take much stronger steps about climate change, with agricultural emissions at the forefront. This was New Zealand’s second-largest public protest and equated at the time to 3.7% of its entire population. Going into the Carbon Zero Act over 15,000 public submissions were received.

On October 24 Ardern was at the lectern right next to DairyNZ chief executive Tim Mackle at Parliament, and announced that the government would work together with the agriculture industry to design a ‘world first’ pricing system by 2025. If the group failed to make enough progress, agriculture could still be brought into the Emissions Trading System.

In November 2019 New Zealand became the first country to set greenhouse gas reduction targets for agriculture in its new Climate Law. As a result pressure started to pile on Fonterra internationally. They kind-of supported the law but for them even trying to get to the targets required further research and “the agriculture sector will need to deploy a comprehensive package of breakthrough mitigation activities, including some that are not yet technically and commercially viable.” (Fonterra submission to the 2015 Paris Climate Accord).  Fonterra very carefully limited its own emissions target cuts to its operations and processing facilities, even though 90% of its emissions came from its supply chain: the farmers.

Prime Minister Ardern said:

My goal is that we never again have to debate the path that we need to be on as a nation, that we never again see  tractors roll up the front steps of Parliament. This agreement will stick and it means instead of debating what we do, we get on with doing it.

But then came the counter-strike.

In July 2021 farmers and rural supporters responded to the multiple resulting reforms with the nationwide Howl of a Protest involving thousands of tractors.

Ardern rapidly retreated from her “nuclear free moment” from this point.

The government response to Fonterra using DairyNZ as a front to ruin its own centerpiece policy, was a friendly review of the Dairy Industry Restructuring Act. In the 20 years of its existence Fonterra’s local dominance has declined slowly from 96% to 80%. The drive for perpetual volume from the founding legislative requirement for Fonterra to take all milk was removed. The requirement for Fonterra to supply New Zealand competitors with milk so that they could start up was also removed. But the deep lock of Fonterra over New Zealand remained: Fonterra was required to continue supplying Goodman Fielder. Fonterra and Goodman Fielder supply almost all fresh milk products to New Zealanders, and those two supply it to New Zealand’s two overwhelmingly dominant supermarket chains Foodstuffs and Woolworths with an 85% market position between them. Near-duopoly upon duopoly.

Rather than hold Fonterra accountable for its own massive national part in political destruction and environmental destruction, Ardern gave it tiny tweaks to its governance. You can see some of this lobbying into government in this Stuff article.

Agriculture hadn’t fitted in to the New Zealand Emissions Trading System, because farmers claimed that if New Zealand’s farmers had been charged the flat tax but international food producers weren’t, they claimed it would render much of New Zealand’s produce uneconomic.

Agriculture was to have its own system separate from the national Emissions Trading System. It would tax the production of unwanted gases, and use the funding gathered to raise funds to run the system and pay farmers for sequestration of land from intensive farming.

The government received the He Waka Eke Noa report in early 2023, made a few changes as it is wont to do … and … the dairy and broader agricultural industries promptly threw its toys out. He Waka Eke Noa was dead.

You can see more detailed agricultural players lobbying, with RNZ’s analysis here.

We are now at a point where dairying is so uneconomic that dairy farmers and workers are making a loss no matter how hoard or how well they produce milk. But Fonterra is stable in its smaller form.  Fonterra has shrunk from all international ambition and has continued to drag us all down with it.

Fonterra and New Zealand still have such inextricably intertwined fates that at this point it’s hard to separate them. There’s only one land in New Zealand. But we are dominated in our entire economy by one business: Fonterra.

On current polling an ex-executive of Fonterra as the most powerful corporate in New Zealand could be our Deputy Prime Minister.

The question is surely why successive governments have allowed Fonterra to take hundreds of millions of taxpayer dollars, exploit our environment, sabotage core public policy, fail in most areas of its business, and get away with it.

Fonterra remains New Zealand’s largest economic threat over New Zealand, and one of our largest political threats as well.

35 comments on “New Zealand’s Greatest Economic Threat is Fonterra ”

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  1. Blazer 1
    29 August 2023 at 9:21 am

    Maybe we can sell it to JPMorgan or Goldman Sachs, when the NZ dollar gets in to the '40s'.

    Fonterra is classic proof that paying ludicrous salaries for executive 'talent' means nothing.

    • Hunter Thompson II 1.1
      29 August 2023 at 4:21 pm

      It has always astounded me that the former Fonterra CEO got an $8 million pa salary for indifferent performance. No-one is worth that amount.

      He also headed an organisation whose shareholders did major damage to our waterways, and continue to do so.

    • Tricledrown 1.2
      30 August 2023 at 6:16 am

      Ludicrous salaries means Fonterra f'd up by doing business with corrupt Chinese partners who added melamine to baby formula the upshot of that is Fonterra can't export value added baby formula other than Judith Collins husbands business for some unbelievable reason.The executive who put the Deal together was on $5 million a year. The damage to Fonterra and the NZ economy in the $100's of millions.

  2. Tricledrown 2
    29 August 2023 at 10:18 am

    Your False claim Helen Clark was responsible for the rapid expansion of Dairy farming in the South Island is not true. Rapid expansion was prevented by Regional councils stopping the expansion of Dairy Farms.Nationals Nick Smith took over the democratically elected Eviroment Canterbury and installing their man allowing unfettered expansion after Ecan had said scientific proof that Canterbury had already reached saturation point with to many Dairy farms also Nick Smiths brothers company was facing large fines for allowing oil from a construction yard they owned flow into the water table after Nick Smiths take over charges were dropped.After the take over of Ecan other Regional councils allowed rapid expansion of Dairying.

    • Ad 2.1
      29 August 2023 at 11:46 am

      "The 2009 National government …"

      Learn to read before pouring your righteous heart into print.

      • Patricia Bremner 2.1.1
        1 September 2023 at 9:52 pm

        Ad I used your essay on Fonterra to convince two friends who were wavering. Cheers.

    • JK 2.2
      30 August 2023 at 6:17 am

      Read it again; it doesn't say that the Clark government expanded dairy in the SI, it says National did.

  3. Tricledrown 3
    29 August 2023 at 10:50 am

    The greatest threat to New Zealands economy is the National Party .Nationals last term in power New Zealands economic growth barely made 1% per annum over 9 years driven largely by record migration.So I fact New Zealands economy shrank for 7 of the 9 years National were in power.That would have been far worse if it had not been for the nearly $65 billion capital injection from the Canterbury earthquakes.National say they are better economic managers for the well off but for the 60 to 70% of not so well off its Austerity. While most the money printed and borrowed to prop up during Covid went to the big 4 overseas owned banks who pay no that is zero tax on record profits,Those banks only lent to speculative investments in mainly property including Dairy Farms which benefited the well off.Who is going to pay all the debt the workers on wages and salaries while the well off are paying only7 to 8% on income while average middle income earners are paying 3 to 4 times that a 30% plus tax

    .National will figure away to give enough crumbs to the swing voters to regain power.They will push house prices to even more un sustainable highs.Put more user pays onto wage and salary workers no wage rises for health workers, teachers , police, etc will see a bigger exodus of desperately needed skills while National will force wages down by breakingunionand replacing existing workers with migrant workers on lower wages .Same old National protecting the Wolves of Wall St while pretending to be in sheep's clothes!

    !

  4. Patricia Bremner 4
    29 August 2023 at 11:53 am

    This is the Fonterra Executive who says she will run the country's books? Ooooh Kaaaay.

    Fiscally smart? No Governing for all? No. Do we want this to continue? No.

    So what happens now? Dairy Farms are losing money and are now costing us in every way. Last thing we need is more of the same.

  5. adam 5
    29 August 2023 at 3:16 pm

    Well said Ad.

    The very kiwi corporate coup d'état.

  6. DS 6
    29 August 2023 at 6:29 pm

    "Breaking open" China is perhaps a bit of a misnomer, in the sense that you make it sound like Beijing was a passive actor here. China bought itself not only milk powder for its middle class, but also bought New Zealand as an economic client – a relationship that is now symbiotic.

    • Ad 6.1
      29 August 2023 at 7:56 pm

      Symbiotic my ass.

      • DS 6.1.1
        29 August 2023 at 11:37 pm

        They buy our dairy, and we buy their manufactured goods. I believe the expression is knowing which side our bread is buttered.

        But short of New Zealand developing a new and massive export industry to replace dairy (which would require many years of work, a good deal of luck and the sort of government economic intervention that went out with Muldoon), Fonterra isn't going anywhere, and neither will our reliance on China.

        • Ad 6.1.1.1
          30 August 2023 at 7:11 am

          We're nothing to China and they could easily replace Fonterra's products.

          China is on course to become the third largest producer of cow milk. Its self-sufficiency rate is around 70-80% so we are very fortunate its hard for them to go higher than that.

          Fonterra is slowly recovering in China after nearly wiping out in 2019. But it now represents more than a third of Fonterra's profit and is only in that position because of a decade of catastrophic global investments.

          Fonterra is consistently sheltered in NZ by our strong MFAT and NZTE effort, when it needs to diversify more elsewhere.

          It may well be too late, at least for 2024.

      • Bud 6.1.2
        31 August 2023 at 12:06 am

        What ab absolute crock.

        Almost took this bullcrapn seriously until I read the words "Prime Minister Adern"

        Means as much as she does now… Absolutely nothing.

  7. Corey 7
    29 August 2023 at 6:59 pm

    Fontera is the NRA of NZ.

    We are destroying our environment (which hurts our tourism industry in the long run) our drinking water and selling out our sovereignty as a nation that holds power to account just so we can sell cheap low grade milk powder.

    Putting all out eggs in china's basket is going to be as big of a mistake as Muldoon getting rid of super, it not worse.

    Where are all nzs sheep btw you never see any? Nz used to be known as a sheep farming nation now we're just cows. Our wool exports are dead, we have destroyed so much for milk powder.

    For decades our useless leaders have said we need to diversify away from just farming and Noone actually ever has…

    The day draws near when dairy of any kind is about as valuable as sand, all around the world, including in China, people are consuming less dairy and more locally made plant based products, what becomes or this milk powder republic on that day?

    Relying so much on agriculture is a sign of a weak, backwards economy and new Zealand very well could become just another poor pacific island nation like the ones whose main industry's are sugar.

    Our indivual wealth has already dropped substantially, the average was in Australia is nearly a hundred k, the average wage in nz is just 60 something k, we're getting poorer and poorer and it's becoming too expensive to live here.

    Unless nz makes massive changes and fast, I either see nz becoming at best a state of Australia or at worst just another poor failed settler state.

    The arguments of nz staying a sovereign nation become less convincing every day, but I doubt aussie would want us if we leave it too late.

    • DS 7.1
      29 August 2023 at 7:14 pm

      We're never becoming a state of Australia (our interests are too different). Frankly, Australia itself is already having the problem of divergent interests between the dominant eastern states and Western Australia.

      New Zealand has always been agricultural. It's why we were set up – to be Britain's farm. Now we're China's farm. We've never properly industralised, and the attempts to change that ended with with Muldoon's Think Big projects.

      (As for sheep? Simple. There's no money in wool these days. If you're farming sheep, it's for the lamb).

  8. Ian 8
    29 August 2023 at 11:11 pm

    What a load of twaddell. Blaming Fonterra for 6 years of Government mismanagement is laughable. Dairy farmers will weather the current storm and come out of it stronger .Global warming is a very big positive for low cost New Zealand milk production in the longer term.

    • Psyclingleft.Always 8.1
      29 August 2023 at 11:24 pm

      Global warming is a very big positive for low cost New Zealand milk production in the longer term.

      Huh ? I'd say that was a load of "twaddell".

      But its really just a load of shit.

    • That_guy 8.2
      30 August 2023 at 11:16 am

      "Global warming is a very big positive for low cost New Zealand milk production in the longer term."

      What

      Ever heard the phrase "extraordinary claims require extraordinary evidence".

      The only things that global ecosystem collapse is "a big positive for" are sandbags and bodybags.

      You are on another planet.

  9. B Smith 9
    30 August 2023 at 5:44 pm

    The large corporations in new zealand need to be downsized, they get away with almost anything and manipulate their way to grow stronger bringing down the little people. The mum and dad trying to make a living for their family, from their farm, small business entity, compared to large scale Fonterra, Fletcher etc.

    Bring back support for the SME, the backbones that make these large scales work.

    New Zealand had its own economy in the past which was well sufficient, can be sustained again

  10. Gabriele L. 10
    30 August 2023 at 6:51 pm

    Finally more people can see what's going with the monopolies on New Zealand. Only took 25 years. That's what's dragging New Zealand and it's people down.

  11. Axle 11
    30 August 2023 at 7:15 pm

    Well if the say that they are big as they say they are have they put money aside for a rainy day which it's certainly gonna rain on them or they put all there meat in one basket 🧺