Hemang Bhatt, senior research technologist, and Donna McBride, general manager dairy foods, at Fonterra's research laboratory in Palmerston North with cream developed for machiatto tea. Photo / Supplied
Fonterra is keeping an open mind on plant-based milks, which it concedes look like being here to stay.
The co-operative dairy giant is thinking along the lines of products that may entail a combination of bovine milk and plant-based milk.
If such a product eventuates, the chances are it will come from Fonterra's Research and Development Centre (FRDC) at Palmerston North.
The 400 or so staff there - 100 of them with PhDs - are involved in unravelling the complexities of milk, finding out more about its component fats and proteins, and working out how to apply that knowledge to make new products.
Spreadable butter was invented here in the 1970s, as was Fonterra's mozzarella cheese, which is now used on about 50 per cent of all pizzas in the burgeoning China market.
Mark Piper, director, group research and development at Fonterra, said the co-op is looking at how plant-based product can be combined with bovine milk to "provide something different".
"Plants are fantastic for fibre whereas dairy has no fibre in it," Piper said at a briefing after a media tour of the facility.
"If you look at the creams, could there be a new cream that could be even better, to hold on whip for five days instead of two? All those kinds of things ... so that's what we are exploring - a combination of the two."
FRDC has its own, small-scale manufacturing facility for new product development and problem-solving.
While a standard factory processes hundreds of tonnes of milk a day, the FRDC plant processes just a tanker's worth.
Piper says Fonterra is not interested in buying into the plant-based versus bovine argument.
He says the potential could be in the so-called "flexitarian" consumer - those who adopt a semi-vegetarian diet.
"Getting product that people like is where we want to go," Piper says.
Chief executive Miles Hurrell said plant-based milks may have been seen as a fad 10 years ago, but it's a trend that is here to stay "and we are absolutely convinced of this".
"There will be consumers who will flip between both, and consumers who are solely into non-bovine. Our role will be to find out how we play in that," he said.
Fonterra's milk collection for the 2020/21 season was 1539.2 million kgMS, 1.5 per cent ahead of the previous season's.
Even though it was a respectable year, the days of big jumps in production - driven by rapid rate of farm conversions - are long gone. These days, the conversions are more likely to be from dairy to horticulture.
In the boom times, Fonterra had its work cut out in terms of placing the rapid lift in production in various markets.
Now, the focus is on how to best extract value out of what is likely to be flat or declining milk production.
Before Fonterra's much-vaunted business reset in 2019, the buzzwords were the three Vs - "volume, velocity and value".
Now it's "innovation, sustainability and efficiency".
"Because we don't have the milk growth now, it gives us the ability to think differently around how we approach that," Hurrell says.
"That does not mean that we are moving away from bovine - far from it.
"We are a farmer-owned dairy co-op and always will be - but it's about how we open our minds to tap into what consumers want," Hurrell said.
He said Fonterra's organics business was going from strength to strength, growing at 10 per cent a year.
And in an international context, the standard New Zealand pasture-fed model was not that far off organic.
"When you look at an international barn-raised system, they are poles apart [from organic].
"But when you look at an organics system compared with a pasture-based system, they are not that far apart, so there is an opportunity already for New Zealand to get in behind that."
As Hurrell sees it, what goes on at FRDC reflects the fact that the New Zealand dairy industry has had to innovate because of the long distances to its markets.
"So it starts with dehydrating the product - by and large - to give it shelf stability - so that you can take it to market.
"But when you go through that process you can start to identify how you can break it down even further versus fresh milk off the farm, pasteurised and delivered to the customer," Hurrell says.
"We are going to continue to see growth in the wider foodservice categories whether that be in pizza toppings or creams, or cream cheese."
Fonterra's role in China's tea macchiato market has been another technical achievement for the dairy co-op, and that success is providing impetus for new products.
China has really led the way in the top-end bakery category which it hopes can be replicated throughout Southeast Asia.
"The rest of Southeast Asia has not really moved into that category yet, but as demographics throughout the vast majority of SE Asia change, we will start to see the Chinese habits come across," Hurrell said.
The co-op also sees big opportunities in sports drinks and lifestyle products.
Whey protein was once the exclusive domain of the hard-core bodybuilders and sportspeople, now it's gone more mainstream in the form of snacks bars, to be eaten after a run or a bike ride.
There are also opportunities in the medical nutrition niche, which is very small but highly profitable.
Fonterra went through an acquisitive phase, playing a volume game of building milk pools around the world, before undergoing a major reset which involved selling those assets and refocusing its efforts closer to home.
"We are now saying that not all milk is equal and that we have got something special here in New Zealand and let's focus and protect it.
"It's about focusing literally on the white gold that we have here in New Zealand."
Fonterra will look to replicate the success it has had in China and Southeast Asia, over time.
"Our milk is no longer growing, so it's required a different mindset," Hurrell says.
"While it was fun back in those days to scratch around trying to find new markets that we could not even pronounce the names of, it's quite a nice place to be."
(Jamie Gray travelled to FRDC in Palmerston North, courtesy of Fonterra)
Interest in plant-based milk manufacture in New Zealand is on the increase.
Alisdair Baxter is business development manager at the Government-sponsored The FoodBowl, a facility where companies can do research and development trials, pilot-scale and commercial runs of new products for domestic and export markets.
"Plant-based is a definite trend that we are seeing coming through from client requests - from the bigger companies and the startups," he says.
"Interest is definitely increasing in the Western countries.
"People think it's healthier and better for the planet - so more and more consumers are wanting that," he said.
Baxter said it appeared that there was more and more demand for plant-based milk alternatives in New Zealand.
"But the problem is that we are very much set up for dairy and meat in this country and we have traditionally not grown the plants that are used to make some of the milk analogs - or the traditional plant-based foods - gluten, soyabeans and peas - and we don't have the facilities to make it," he says.
However, there are crops that have potential - oats, which grow well in Southland - and hemp.
Baxter said oat production lends itself better to plant-based milk than some of the other crops but Southland's NZ Functional Foods is building a facility which it expects to have up and running by 2023.
NZ Functional Foods - set up by regional development agency Great South - plans to build a carbon-neutral plant-based food processing factory at Makarewa to produce products using the country's viable plant crops, such as oats, hemp and peas.
The new company has received support from Sir Stephen Tindall's investment vehicle, K1W1.
One adult died at the scene and three people suffered minor to moderate injuries.