Rural delivery: Overseas cows help Fonterra milk global markets

Fonterra recently broke the news that next year nearly 20 per cent of the milk it markets will come from farmers outside New Zealand.

That's great. Because every litre of that milk - purchased, processed and marketed at a profit - improves the profitability of Fonterra's business. Fonterra's 12,000 suppliers have a big stake in that profitability.

In fact, every New Zealander has a stake, which is no less real because it is smaller.

And sure, it's not just liquid milk that's being talked about here. Often what are being bought and on-sold are commodities, such as skim milk powder or milkfat. The principle is the same - make money out of someone else's raw material.

Anyone wondering whether that really is a good idea should ask themselves just how many of John West's salmon are sourced from the Highlands of Bonnie Scotland?

It's hardly a new idea either. Why then do we hear murmurs of misgiving in some quarters of the dairy industry?

In a dairy co-operative it is implicit that a tanker will turn up at the farm each day to take away a raw material, which is very perishable and won't stop coming.

Any suggestion that the tanker might stop calling, because milk is cheaper somewhere else, might be irrational - but it's also understandable. The 500,000 tonnes of non-New Zealand milk being marketed by Fonterra is about half the volume produced by New Zealand cows 25 years ago.

If Fonterra can buy all its milk in South America, Central Europe or wherever - and buy it cheaply - could there come a time when the company tells New Zealand farmers to do something else with their grass?

Those who pose that question forget that it's the farmer-suppliers who own the company. They forget too why those farmers chose the co-operative ownership structure in the first place To them it's axiomatic.

Meanwhile, Fonterra's share of the international market continues to grow (up from 19 per cent to 34 per cent since 1990).

That's good news too. It makes New Zealand, or at least Fonterra, a bigger player in the international milk business and that is a very good position to be in.

The advantages are several, not the least of them being a greater ability to favourably influence market fundamentals.

But, stepping back from all this, perhaps the most encouraging fact of all is New Zealand's position in the world milk-foods business is getting stronger. Food in general and milk in particular, one can't help thinking, will increasingly be a very good business to be in.

The historian Ronald Wright in his A Short History of Progress, a not for the faint-hearted treatise on the history of civilisations and their fall, observes that global population and economic growth are placing unsustainable strain on key resources - such as food.

It's the same phenomenon that bowled many previous civilisations and now it threaten ours. Sure, agri-science is boosting production. The question is: can it boost production enough - let alone sustainably?

It took the human race from the birth of civilisation to the height of Roman power to reach a population of 200 million. We've manage to add that many mouths to the food queue in the past three years.

Meanwhile, shifting desert sands are eating into vast tracts of China's productive land and fast-melting Himalayan glaciers threaten to sluice fertile soils away in many parts of Asia.

Global fish stocks are under threat; sprawling cities gobble up farmland. Geo-political change on an unprecedented scale threatens.

These factors suggest that it won't just be oil in short supply.