4 Feb 2014

Risk in having all eggs in Fonterra basket

6:59 am on 4 February 2014

Government analysis has pointed to weaknesses in the dairy industry, including putting all our eggs in the Fonterra basket.

A five-year Ministry of Business, Innovation and Employment project looking at the state of New Zealand's food and beverage industry found growing strengths for our exports beyond dairy but also sounded a warning about our continued reliance on dairy.

According to the report, New Zealand is the ninth largest milk-producing country in the world and accounts for 2.4 percent of global milk production. Fonterra controls 88 percent of our milk supply and is the fourth-largest dairy company in the world by turnover and first by milk intake.

The report says one of the industry's weaknesses in this country is that most of our eggs are in one basket - Fonterra - and that the company has a limited ability to add value to its products because of the risks associated with competing with its own customers.

It also points to the risk of a boom/bust economic cycle in China, as well as the threat of countries such as Uruguay, Argentina and Brazil adopting the New Zealand pasture system.

However, it highlights opportunities for the sector in the consolidation of the dairy industry, particularly in South America.

As well, it says New Zealand has high standards of food safety, regulatory credibility and a strong position in the global dairy industry.