Fonterra's Theo Spierings warns of trade barriers

Fonterra CEO Theo Spierings at the announcement of the 2015 Annual Result for Fonterra. Photo / Jason Oxenham

Fonterra chief executive Theo Spierings says a resurgence of nationalism around the world will bring uncertainty and protectionism threatens global trade.

Spierings, in notes to a presentation to financial institutions, also warned of ongoing volatility in the commodities markets.

He said that among global trends, a "resurgence of nationalism brings uncertainty", citing Brexit, Turkey, China, Russia and the United States.

Fonterra is the world's largest milk processor, taking in about 22 million tonnes of milk a year, and accounts for 17 per cent of global dairy exports, sending its products to more than 140 countries.

Growth in global trade is uncertain this year following the election US President Donald Trump, who favours protectionism and has withdrawn the US from the Trans Pacific Partnership trade deal, and Britain's plan to withdraw from the European Union.

ExportNZ chief executive Catherine Beard agreed that the rising tide of protectionism was a concern for a trade-dependent economy such as New Zealand's.

"It is concerning and particularly concerning for our biggest exporters, who tend to be agri-exporters," she told the Herald.

"They are the companies in New Zealand with scale and they tend to be the hardest hit by tariffs in any market," she said.

"Traditionally, the most sensitive areas to free trade are in agri, and that's the big conundrum or New Zealand, because that's where our strength is in terms of our export earnings," she said.

Beard feared that New Zealand could become "increasingly uncompetitive" with those countries who do have free trade deals.

New Zealand is in the throes of negotiating a free trade deal with the European Union (EU).

With elections due in the EU member states of France, Germany and The Netherlands, such a deal may face opposition from protectionists, she said.

While the United States had pulled out of Trans Pacific Partnership, Beard said she was still hopeful the remaining 11 countries could forge ahead with an agreement. "We will just have to watch this space on this one," she said.

In his presentation, Spierings predicted volatility in commodity prices would prevail. Global dairy prices have become increasingly volatile over recent years as government subsidies and schemes propping up prices have reduced, allowing prices for more products to be set by the market.

For farmers, that's meant huge swings in prices, with Fonterra paying a record $8.40 per kg of milksolids in the 2013/14 season but just $3.90/kg for the 2015/16 season, below the level required by most dairy farmers to break even.

Spierings said the dairy cooperative remains on track to meet its 2025 target to process 30 billion litres of milk from five to six milk pools, generating $35 billion in revenue as it pursues a strategy to process more higher-value products.

He said global productivity growth of food production had fallen below 1 per cent a year, compared with between 3 to 4 per cent for much of the post-war era, saying growth of between 2 to 3 per cent would have an "immense" impact on combating global poverty.

Climate change was working against the future of food, with food production contributing 30 per cent of global greenhouse gas emissions and serious land degradation affecting 20 per cent of the world's arable land, he said.
(With BusinessDesk)