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.
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