Dairy Board AGM Speech Of Hon. Jim Sutton

Chairman John Roadley, chief executive Craig Norgate, directors, ladies and gentlemen: thank you for inviting me here today.

This is a historic occasion.

This is the final annual general meeting of the New Zealand Dairy Board, and the beginning of a new era for the dairy industry and New Zealand as a whole.

Today, the primary production select committee has reported the Dairy Industry Restrucuring Bill back to the House. The members of the committee were unanimous in their backing of the bill. There are a few amendments to the bill as reported back.

The bill will be debated next week. If it passes, the merger of the Dairy Board, Kiwi Cooperative and NZ Dairy Group into Fonterra can be implemented any time within the next 20 working days after the bill's passage.

This is an exciting time to be involved in the dairy industry.

With the dairy mega-merger, New Zealand has become a significant player in the world dairy market. People are sitting up and taking notice of what is going on here.

Since June, when farmers overwhelmingly supported the formation of the company we now know as Fonterra, the new company's executives have been busy finalising deals.

In the past month, Fonterra announced three major deals.

The first was an agreement with Dairy America to export their skimmilk powder out of the United States. It will make Fonterra the major marketer of skimmilk powder out of the United States.

The second deal was the acquisition of La Mesa and Eugenia in the Mexican market. That will make Fonterra the number one player in the Mexican cheese market and number three in spreads.

Those two are important deals.

But the alliance with Nestle announced a fortnight ago dwarfs them. It is almost certainly going to be New Zealand's biggest-ever offshore commercial deal.

Last week, I was in Uruguay meeting agriculture and trade ministers from Cairns Group countries. The Fonterra-Nestle deal was a hot topic of conversation. My colleagues, particularly the South American ministers, were electrified by the news.

And it is electrifying.

This is Nestle - the world's largest food company and the largest marketer of dairy products in the world. It owns some of the world's most respected dairy brands and has more than a century's experience in the Americas, and with a network that spans the entire region.

And they want to be equal partners in a joint venture with Fonterra.

Here in New Zealand, we're very good at seeing ourselves as a very small, isolated country on the rim of the world ? somewhere people flee from rather than come to, somewhere a bit backward.

That couldn't be further from the truth.

In dairy, we have world-leading skills and technologies. Nestle regards our expertise in farming and milk technologies to be the best in the world. Over the generations, New Zealand dairy farmers have built up the world's best skills in large-scale milk procurement, processing and management.

Fonterra is well on its way to becoming a truly multinational company, dealing in dairy products not just from New Zealand but from everywhere in every market possible.

For farmers, things are booming. There has been record production and farmgate payouts.

Farmer morale remains high, and they are optimistic that this season there could be an even higher payout per kg of milksolids than the 2000/01 season. My ministry, MAF, is predicting an average payout of 515c/kgMS for the current season.

Cow numbers in the 2000/01 season increased from the previous season, and this trend is expected to continue over the medium term, though at a decreasing rate. Most of the growth is expected to occur in the South Island, where land suitable for conversion has generally been cheaper.

The production of milksolids for processing into dairy products is projected to rise in line with increasing cow numbers, and this will result in higher volumes of dairy products manufactured and exported. For the 2000/01 season a record 1,045 million kg of milksolids were produced for manufacturing.

This winter, which included the coldest July in 30 years, followed on from a severe autumn drought. That means many dairy cows, especially in the South Island, are in a less than desirable condition over the calving period.

This will restrict per-cow milk yields in the season just beginning.

Offsetting this are 157 new farm conversions involving about 49,000 cows coming into production in the South Island.

Internationally, butter prices recovered gradually over the 2000/01 season after reaching a 12-year low at the end of the 1999/00 season due to the financial crises in Asia, Brazil and Russia. The medium term outlook for butter is for continued slow recovery in prices as demand exceeds supply in non-OECD nations.

World cheese demand and prices recovered strongly during the 2000/01 season after reaching the lowest levels for 8 years during the 1999/00 season. The recovery was aided in part by the BSE and FMD crises in Europe which reportedly led some European consumers to buy cheese as an alternative source of protein. World demand for cheese is predicted to remain relatively strong and prices are expected to continue to recover over the medium term.

Wholemilk powder and SMP prices increased sharply during the 2000/01 season due to improved demand from strengthening Asian economies and cuts in EU export subsidy rates. The FMD crisis in Europe increased the demand for NZ's milkpowders as countries that would normally purchase from Europe sought product from elsewhere. After peaking in the 2001/02 season milkpowder prices are expected to decline over the next 3 seasons, and begin to rise again slowly from the 2004/05 season as demand recovers.

Here, I must put on my Trade Negotiations Minister hat and direct your attention to exactly why farmers are receiving such good returns.

It's not just that farmers are becoming more efficient and productive in their practices, or that cows are producing more milk. There are also more markets we can sell our products into.

The last round of world trade negotiations ? the Uruguay Round ? had big gains for our dairy farmers.

Those gains don't happen by accident.

It takes a lot of work by Government trade and agriculture officials to negotiate such advances.

Unfortunately, there is still a lot more work to be done and many more advances to be made. We hope to make more progress at the next round of comprehensive world trade talks ? which I hope will be launched at Doha, in Qatar, at a meeting of World Trade Organisation ministers in November.

We need that round.

Last week, I was in Uruguay for the Cairns Group of agricultural trading nations meeting.

At that meeting, Cairns Group ministers expressed concern that total Organisation of Economic Co-operation and Development nations' support of agriculture was running at almost US$1 billion a day, and noted that protection provided by both tariffs and non-tariff barriers, including unjustified sanitary and phytosanitary (plant and animal health) measures, remained very high.

Those protectionist measures particularly affect New Zealand. Almost unique amongst developed nations, we have a strong dependence on primary production exports.

We are very much affected by barriers to trade, because many of those barriers affect food ? our biggest export. A recent survey suggested that our exporters ? many of them food exporters ? face barriers costing us $1 billion a year. I fear that figure is on the low side. It doesn't include opportunity costs, which are not easily measurable. Our virtual exclusion from the United States cheese market, for example, could be costing us another $1 billion on its own.

Rest assured, the Government is doing everything it can to eliminate barriers to New Zealand exports. Dairy is a key priority area for us, as your industry earns about 20 per cent of our country's export earnings.

While the challenge for me and my officials is to keep breaking down the barriers, the challenge for you is to maintain your position at the front of developments in international trade.

The performance of the dairy industry will be closely scrutinised in future.

The eyes of the country are on you now, and they will continue to be so. You have a lot to live up to. Don't let us down.

Thank you.

ENDS

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