Willis discussed the high price of butter. Video / Mark Mitchell
Opinion by Bruce Cotterill
Bruce Cotterill is a professional director and adviser to business leaders. He is the author of the book, The Best Leaders Don’t Shout, and host of the podcast, Leaders Getting Coffee.
Butter prices have surged due to high global demand, sparking debate over local costs.
The average cost of a 500g block rose by 46.5% to $8.60 in the year to June.
The kiwi dollar has depreciated almost 20% against the US dollar over the past four and a half years.
It seems that we’re going batty over butter.
In case you’ve missed it, it’s the price of the stuff that has everyone’s attention. That price has rocketed upwards over the past 12 months as global demand for our product influences the price point at home.
Pricing is afunction of supply and demand. Many of us would argue that we make the best dairy products in the world. In return we attract plenty of demand and good prices. That’s what success looks like. We should be proud of such achievements.
But our universal reaction appears to overlook that success. Instead, it seems we’d rather focus on the price of a block of butter here. And then create a conversation about how bad that is.
Some of the reaction to butter prices has been up there with the best that Monty Python has to offer. For those of you who’ve stopped watching the 6pm news, you missed the cringeworthy moment where a political reporter interrupted the CEO of Fonterra as he walked down the street. Her purpose? To challenge him on the price of butter.
A day or so later, another journalist asked Miles Hurrell if he’d ever been to a supermarket. When he replied that he was “in the supermarket yesterday”, the journalist immediately quoted his seven-figure salary when suggesting that he wouldn’t notice the price of our liquid gold. If the viewer wasn’t embarrassed the day before, surely they would be now.
My only hope was that no one from overseas was watching the attack on success and aspiration that seems to have become a feature of life in our country.
Even the Finance Minister has managed to get in on the butter story. As part of her war on grocery prices, she was off to meet with Fonterra, her former employer, to speak to them about the price of butter. I wonder how that went?
Over the past 18 months, I’ve enjoyed observing the Finance Minister. She’s doing a lot of the things that we really need. Most of her work is difficult and demanding, primarily due to the financial stress our economy finds itself in. It’s a tough gig. And she’s making a decent fist of it.
But I can’t help but think that she’s digging a hole for herself in her quest against the grocery industry. I know for a fact that a number of supermarkets are losing over 10% on some of the leading brands of butter and cheese. That’s $1.20 down the drain with every block sold, I’ve been told. I’m not sure that the Finance Minister is going to find the hidden profits she’s looking for.
Of course, we understand that the cost of living has gone up dramatically in the past few years. But our dollar is lower than it was a few years ago and so anything imported is more expensive. Back home, our minimum wage has increased by 50% in the past eight years. Wages have a major effect on the prices of goods. That is just the reality. And when it comes to dairy products, global demand sees prices at a 10-year high.
Fonterra CEO Miles Hurrell at the co-op's Auckland headquarters. Photo / Alyse Wright
We’ve even had suggestions that Fonterra should charge a different price for product sold locally. Why would they do that? There’s another view that we should take GST off dairy products. Let’s try to exercise some common sense and acknowledge that the cost associated with doing those things would far outweigh the benefits.
Besides, why should Fonterra’s hard-working farmers take the hit to soften our own collective economic failures?
We can jump up and down in disgust at the price of goods. Or we can jump up and down with delight at the fact that we have a world-class industry that can demand top prices for our top-quality product. And we should be celebrating the fact that a world desperate for high-quality food wants what we create.
Give me aspiration over envy any time. When you hear that 100,000 people went through the gates of this year’s Fieldays, you hope that the rest of the country is getting the message. There’s something special going on here.
The best economic news we have had in the past two years is that our farmers have made it through one of the toughest periods in their history. Through the floods, the regulation, the droughts, the lockdowns and the economic uncertainty.
Instead, they now face a wave of demand for their products which are among the best in the world and the value that goes with that. That demand for our meat and dairy products will save us, yet again, from economic ruin.
The unfortunate aspect is that, it could be even better. By virtue of our own actions, we’re leaving some of that profitable revenue on the table.
According to Beef & Lamb New Zealand, over 300,000ha of productive sheep and beef farmland has been sold since 2017, for conversion to forestry and in particular for carbon farming with pine trees. The chair of Beef & Lamb NZ said in June that farms were selling for forestry conversions at an “alarming rate”.
What would you prefer. Hard-earned cash revenues, or carbon credits? Every farm we lose to forestry is a dent in our export revenue opportunity.
Thankfully, the Government has introduced legislation that is expected to pass into law in October, that will restrict whole-farm conversions to forestry. Industry insiders say it’s not enough. But at least it’s a start.
This stuff is important because, when you’re good at something you should seek to do more of it. Forestry messes up land that could otherwise be productive for us. And the land is stuffed long after the trees are gone.
As we know, farming in its traditional sense has challenges that the environmental alarmists are quick to raise. But our farmers are up for those challenges. They’re among the best in the world at managing the environmental impacts of what they do. Again, that’s cause for celebration, not criticism.
And therein lies a key point. We love to knock the farmers. The cardigan wearers get grumpy because their cows fart and their effluent runs into our rivers. We place thousands of pages of legislation, only some of which is necessary, that blocks their pathway to success. Somehow, they keep getting up off the floor to deliver a product that we can sell at a profit.
Many of those farmers have spent too much time in their own recession. They punched on, overcame obstacles and accumulated debt to stay in business. They made personal and family sacrifices to keep the dream alive. And now, that dream is becoming a reality.
If they are able to have some success now, pay down some debt, get their families back on an even keel and help the country while they’re at it, we should be celebrating for them and with them.
In the meantime, after the mixed successes of several CEOs appointed from overseas, local boy Hurrell was appointed a few years back and is making Fonterra great again. He is overseeing an industry that has constructed its own recovery through the development of a product that the world needs, a strategy to sell that product to a global audience and to maximise the opportunity to feed a hungry community of international customers.
And with some of our other industries yet to recover fully from the post-covid blues, we should be grateful for his team and the farmers they represent. In fact we should be celebrating and asking ourselves what more we could be doing to ensure their continued and increased success.
If we were to look at New Zealand as a business, you’d prioritise ideas that can make a 10% difference to our bottom line. Right now, the agriculture market is our friend and the outlook is positive. A decision to double down on farming would be the first thing you’d do. We should challenge ourselves and our leaders to make it easier to succeed in farming not harder. Let’s seek to sell more butter and beef, and ideally push those prices higher still.
And let’s not criticise the people making it happen or complain enviously about their salaries. I’d suggest that we shouldn’t whine about things that reflect in our own success. Who knows, if the price of butter gets to $20, we might all get a tax cut. That’s how success works. I’d suggest it’s a price worth paying.
There’s a saying that gets thrown around a lot. It goes like this. “Farmers are the backbone of the economy”. It’s a phrase that’s been around for a long time. There’s a reason for that. It’s true.
I’ve never heard an Arab complain about the oil industry. Perhaps we need to be better at celebrating what’s good for us.
Bruce Cotterill is a professional director, speaker and adviser to business leaders. He is the author of the book, The Best Leaders Don’t Shout, and host of the podcast, Leaders Getting Coffee. www.brucecotterill.com
