New Zealand's dairy industry is enjoying record prices and strong global demand.
A new butter venture has provided an exciting opportunity for one of the country’s leading milk processors, writes Graham Skellern
Mention the word tariff to Open Country Dairy chief executive Mark de Lautour and he just shrugs his shoulders.
“People are fretting about the tariffs, but in the end it will be the US consumer who suffers if the person buying the product passes on the additional cost,” says de Lautour.
“There’s no skin off our nose. The US tariffs are an import tax, and our price is what it is. We are not receiving an invoice from the US. The tariffs won’t make any difference to us.”
Open Country’s trade with the United States will dramatically increase after its new butter processing plant at Waharoa near Matamata is commissioned over the next few weeks.
The plant will have the capacity to produce 20,000 tonnes of butter a year, and Open Country has already contracted about 40% of the production to food importers in the US.
“It’s a good position to be in. I just wish the plant was running now,” says de Lautour. “There is a growing demand for butter, as there is for other dairy products.
“Butter production is a new venture for us. We have the technology and people expertise to do this, and butter will be a nice add-on to our core products of skim milk powder and cheese.”
De Lautour says the Waharoa butter factory will be commissioned during August. “We will have the machinery suppliers there, as well as the US importers. By September we will be producing butter in anger.”
Open Country, wholly owned by Talley’s Group and the country’s second-largest milk processor, supplies bulk butter and other dairy products to the wholesale and foodservice markets in 60 countries, and soon the US.
The yellow, grass-fed New Zealand butter is often preferred for baking and cooking (in restaurants) than the paler, almost-white, grain-fed American butter. The yellow butter has a richer flavour and higher beta-carotene content.
The timing for Open Country’s new venture could not have been better as the dairy industry rides record prices and strong global demand. The price of butter at the Global Dairy Trade auctions rose from US$6631 (NZ$11,070) a metric tonne in mid-December to US$7811 ($13,040) in early June.
De Lautour says the New Zealand dairy industry has “struck the trifecta this milk season. If anyone is complaining, then they are in the wrong industry.”
Volumes have increased, payments to farmers are higher and the NZ dollar has been weaker against the American, benefiting exporters.
De Lautour says while cheese prices have been firm, milk fats have been a driver this season with historically high prices. “All protein products have been in strong demand, such as whey protein concentrate and milk protein concentrate – “that’s like skim milk powder on steroids; it’s a natural product that comes from stripping off the fat”.
In the season just completed, Open Country collected “well north of two billion litres of milk” from its 1100 farmer suppliers and its milk solids volume increased 7%.
The New Zealand dairy industry has struck the trifecta this milk season. If anyone is complaining, then they are in the wrong industry.
Open Country, which pays its farmers four times in the year, made a payment of $8.81 per kg of milk solids in the period June to September last year; $10.01 for October and November; $10.57 for December and January; and has forecast a mid-point of $10.70 in the period February to May this year.
“We are not like a co-op and don’t have the right to use other people’s money. We buy the milk and our farmers are fully paid as we go through those periods. It helps their cash flow,” de Lautour says.
Auckland-based Open Country, with six sites around the country, produces more than 300,000 tonnes of milk powder and 50,000 tonnes of cheese, as well as other value-added products.
Open Country is planning to double its cheese production at Awarua, near Invercargill, over the next two to three years. A second plant there would have the capacity of producing more than 60,000 tonnes a year, supplying wholesale customers with 20kg blocks of cheese.
But first, Open Country is sorting out the front and back ends of the production process by enhancing the wastewater system and replacing coal boilers with electrode boilers.
“We should be out of coal by the end of this year,” says de Lautour. “But we will keep the coal boilers commissioned for eight weeks of the year just in case the water runs out.”
Open Country has also just shipped its first orders of frozen milk concentrate from Awarua. “It’s 45-55% solids like a condensed milk subtract and is popular in Asian coffee shops,” says de Lautour. “The concentrate tastes like natural milk and it’s the equivalent of the Starbucks chain giving fresh milk to countries that don’t have it.”
Horotiu, with one dryer, and Whanganui, two dryers, manufacture whole milk powders. De Latour says, “We are putting more capital into Whanganui by installing a reverse osmosis separator which extracts the water out of the milk before it goes to the dryers. This way we have more capacity to collect more milk. We want to keep up with the growth in the Whanganui region.”
The landmark Waharoa site has state-of-the-art technology to produce a mix of cheese, milk powders, milk fats, proteins – and very soon, butter.
Open Country began operating in 2004 with the first cheese plant at Waharoa and two farmer suppliers. It merged with Dairy Trust in 2008 and by then had two powder plants operating at Waharoa and Awarua.
“We are well balanced in the Waikato region with whole milk and skim milk powders, cheese, curds and whey, and butter,” says de Lautour.
After Talley’s took over Open Country in 2021 (buying out Singapore Olam International’s 15.1% shareholding), the dairy processor is now handling another new product: ice cream.
In an internal group move at the start of April, Open Country is now making the Talley’s, Deep South and Motueka Creamery ice cream at the existing facilities in East Tamaki, Auckland (previously the site of Emerald Foods) and Motueka.
“The majority of the ice cream is exported with a lot to Japan, and we want to build on that,” says de Lautour. “Very high food safety and quality standards are required, and ice cream is a nice value-added component to our milk fats offering.”
On the back of the buoyant dairy industry, Open Country is looking for more growth. Most of its production is exported – “there’s a little bit of milk powder and whey protein domestically, that’s about all” – and it is selling more to North Africa, particularly Algeria; the Middle East and Southeast Asia, especially Indonesia and Malaysia.
“We want to collect more milk in the Waikato, Taranaki/Manawatū and Otago/Southland regions,” de Lautour says. “Our biggest driver is not just securing new farmer suppliers but getting the dairy industry back aligned with growth.”
He believes the time is right to make more farmland available for dairy conversions. “Over the past five years the industry and Wellington has been sitting and talking about max dairy – that the industry has reached peak production. We don’t philosophically agree with that sentiment.
“New Zealand is the most efficient dairy producer in the world, and we will continue to improve. We can produce more milk in a carbon footprint two or three times lower than any country in the world.
“Our dairy farmers have become very good at capturing and monitoring data and seeing the impact they make on water catchments. They have a better understanding of the environmental impact now than a decade ago – and because they are measuring it, they can manage it.”
De Lautour says New Zealanders haven’t been good at deciding appropriate land use, and the Resource Management Act and local councils should not needlessly stand in the way.
“We’ve seen pristine farmland converted into forests. You drive past perfect flat land in Taranaki and Southland that is not used for dairying. That land can still be converted and be comfortable that it is managed well.
“But that hasn’t been supported by councils. Because there hasn’t been a lot of data around, decisions have been made on opinion and assessment. The dairy industry now has a lot of data and good management systems, and we need to start being very fact-based about land use.”
De Lautour says there’s talk of some dairy conversions in Canterbury. “If they do it there, then we should be able to do it in Otago/Southland where the water quality is better.”
He says Open Country has made big strides in reducing carbon emissions. “We have removed coal with pellets in the North Island and are adding the electrode boiler in the South Island.
“We have the most efficient tanker fleet with Euro 6 diesel engines, and the tankers are replaced every one million kilometres. We are very comfortable with our Scope 1 and 2 emissions.”
De Lautour says New Zealand needs a defendable position and a good story on carbon emissions by focusing on water quality and appropriate use of fertiliser.
“There’s no reason why the country can’t produce more dairying and keep its halo as the world’s best producer,” he says.
“We can get our quality product delivered to all parts of the world with a low carbon footprint. Food safety is driving customers’ decisions more than carbon emissions.”