The dairy industry had export sales of more than $6.3 billion in 2007, making it New Zealand’s leading export earner.
New Zealand sells 95% of its dairy products abroad, which is a greater proportion than any other country. However, only 3–4% of the world’s dairy products come from New Zealand. Most other countries produce their dairy products largely for domestic consumers.
The manufacture of dairy products depends upon reliable supplies of high-quality milk. Since the 1980s milk production has grown in response to the relative profitability of dairy farming compared to other land uses in New Zealand.
New Zealand dairy products are marketed around the world. Europe is the most important market for butter, the US for casein (a protein supplement), Japan for cheese, and Asia for whole milk and skim milk powder.
New Zealand’s dairy markets are sensitive to global production factors. In the late 20th and early 21st centuries subsidised production in Europe and North America led to the accumulation of significant global stocks of dairy products, which drove prices down, and the nature of marketing activity. However, between 2006 and 2008 these global stocks declined significantly and led to higher demand and product prices.
Before the advent of refrigeration, which meant milk could be reliably shipped overseas in large quantities, the domestic market consumed the milk of only a few thousand cows. In 1880, exports of butter and cheese to Australia comprised 0.17% of New Zealand’s total exports.
In 1882 frozen butter was first experimentally shipped from New Zealand to London aboard the Dunedin, which was mainly carrying meat. The voyage took 98 days. Refrigeration plants gave a huge boost to the infant dairy industry, as well as to the meat industry, from the early 1880s.
Despite a period of agricultural recession, dairy exports increased to 7% of total exports by 1890. By 1920 this had risen to 22%, and in 1930 to 42%. Butter was crated in wooden boxes or barrels, kept at a temperature of 4°C, for shipping to Australia and Britain.
The UK market
The cooperative movement in the dairy industry fostered collective export marketing, and in 1914 the government agreed to sell all New Zealand exports to Britain for the war effort. The bulk-buying agreement ended in 1921. Companies competed on the UK market until 1928, when Amalgamated Dairies was formed in London by several New Zealand companies to market butter and cheese in the UK. This initiative was led by Sir William Goodfellow, who ran the Waikato-based New Zealand Co-op Dairy Company, a leader in grade standards, hygiene, farm construction and herd testing. In the Second World War, Britain again became the sole buyer of all dairy exports. This arrangement lasted until 1954.
And then there were…
In the 1920s and 1930s there were 240 cooperative dairy companies in New Zealand. Through amalgamations and takeovers, they declined in number to 230 in the 1940s, 220 in the 1950s, 100 in the 1960s, 90 by the 1970s, and 36 in 1983. In 2008 there were only three: Fonterra, Westland and Tatua.
New Zealand Dairy Board
The New Zealand Dairy Control Board was created in 1923 to oversee group marketing. It was disestablished in 1934 when the government assumed all responsibility for product marketing and introduced a guaranteed price scheme.
The New Zealand Dairy Board was established in 1961, and operated as sole export marketer for 40 years. More than 100 cooperative companies gained collaborative strength to compete in distant and difficult marketplaces.
The Dairy Board grew from a dispatcher of butter and cheese to the UK to a multinational dairy foods company. It operated through 80 overseas subsidiaries and joint ventures established in 30 countries, marketing products to more than 100 countries.
Investments in subsidiaries increased to around $1 billion in 2001. These included Dorman/Roth, the largest importer of European cheese into the US; Anchor Foods in UK; and subsidiaries in Latin America, South-East Asia and Japan. The Dairy Board used these subsidiaries to develop closer relationships with markets and customers.
Over time, more and more dairy products sold overseas by the New Zealand Dairy Board were actually made from milk produced outside of New Zealand. By 1988 such products made up nearly 20% of subsidiaries’ sales.
The Dairy Board recognised there was an advantage in processing their products into branded goods, which was perceived as more secure than selling commodities on the open market.
In 2001 the dairy industry was deregulated and legislation passed to liberalise exports, with the aim of making New Zealand more competitive on the world market. The New Zealand Dairy Board merged with the New Zealand Dairy Group and Kiwi Co-operative Dairies, previously the two largest in New Zealand, and formed Fonterra Co-operative Group.