Tim Groser's warning that the dairy sector would effectively have to guts it out during a period of low milk payouts was timely.

It's perhaps easier said than done maybe from the perspective of a Trade Minister.

But dairy farmers are a resilient lot. They've been through cyclical times before.

Yet, last week's Fonterra announcement that the co-operative has downwardly revised its 2014/2015 payout forecast back to $4.50/kg milk solids (from $4.70) was still a hard knock for those that had factored the higher track into their own financial planning.


Federated Farmers pointed out just how difficult it was for some dairy farmers with their comment that the average Canterbury dairy farmer was now facing a loss of 91c for every kilogram of milk solids that they produced.

For a tempered - and "outside in" view - it is hard to go past Sean Keane of Triple T Consulting.

Keane makes the point that the NZ dairy industry - having enjoyed some very good incomes in recent years - is well-placed to withstand this year's downturn with farmers able to draw down on prior year's savings. Along with some flexibility from local banks they should be able to stay afloat and continue operating.

The pertinent aspect in Keane's recent analysis is that there has been no real drop in lending appetite to the dairy sector. The most recent credit claims data, in fact, showing that dairy lending has risen by 6 per cent over the past 12 months compared with an all sector average of 5.4 per cent.

Says Keane: "The real test for the industry, and for the NZ economy, will come if the 2015/16 payout is also weak and the consensus hope there is for a number above $6 per kg/milk solids. Anything much less than that is likely to put pressure on some of the more leveraged parts of the dairy industry, and cause the lending banks to trim their credit appetite. It will also of course reduce the amount of tax collected by the New Zealand Treasury."

The overnight auction on the GlobalDairyTrade platform was predicted to show another drop in the international dairy prices.

Again, the biggest factor was said to be the lack of demand from China which is New Zealand's largest dairy market.

Both Groser - and dairy sector bosses - are confident that demand will ultimately pick up again.


But in today's environment it is incumbent on Fonterra to be nimble and agile.

In a recent interview with this columnist, Fonterra chief executive Theo Spierings said the most important factor at this point in the co-operative's development was to "step up the velocity".

What Fonterra really needed to do was to grow what observers say are "Chinese feet"

Particularly to keep up to speed in the fast-developing Chinese market.

Spierings has made a significant appointment to spur development by putting Jacqueline Chow into the new role of chief operating officer of velocity. Currently Chow is the managing director of global brands and nutrition.

In her new role she will work across the entire co-operative by leading the velocity part of Fonterra's V3 strategy to deliver the best possible performance.

The V3 strategy centres on volume, value and velocity: increasing milk production volumes to ensure Fonterra maintains its share of the growing dairy market, driving more value from its milk through higher value products, and doing so at speed.

Spierings reckons Fonterra needs to get faster because the geopolitical world changes so fast "management needs to keep the metabolic rate up".

This is a tough ask in a highly competitive environment.

Certainly in the long-term the predictions are that China's demand for high-class dairy proteins will grow along with the expansion of its middle class.

Late last year, Euromonitor put China on track to overtake the US to become the world's largest dairy market by 2017 - doubling in size to US$70 billion ($92.7 billion) by 2019 on the back of the country's growing appetite for milk, cheese and yoghurt.

Other emerging giants in this area include Brazil, which Euromonitor said had the second highest per capita spending on dairy globally just behind Australia.

The forecasting group also predicted that half of new sales between 2014-2019 would come from eight markets - China, the US, Brazil, Russia, France, Japan, Germany and the UK.