US joining best to take on the rest

By LIAM DANN primary industries editor

One of the most powerful men in the US dairy industry paid a whirlwind visit to New Zealand last week.

Surprisingly, given the fear that US farmers have of free trade and unsubsidised Kiwi exports, he came to talk about how the two nations could work together and take on the rest of the world.

Tom Camerlo, a laid-back, slow-talking Colorado farmer, chairs the world's largest dairy co-operative, Dairy Farmers of America (DFA). The organisation has 24,000 members across 47 states and, like Fonterra, is a relatively new concept. It is into its fifth year and was the product of some serious mega-mergers.

"What we have in the US is herd size increasing rapidly," he said. "Our average herd size is about 130 head. But that's the average. We range from 30 cows to 12,000 cows.

"We are going through rapid change. Everything is bigger. It's about efficiency."

When your customers are giant supermarket chains like Wal-Mart you need to to be big.

"They want consistent quality and service. If you sit down and negotiate with a Wal-Mart you better have size. It takes size to meet the competition today."

Camerlo admits that the traditional US farmer's view of his Kiwi colleague has not always been too rosy.

"We think Kiwi farmers have horns," he joked. "I don't think they are the devil any more."

The reason for that shift in mindset has something to do with the grudging acceptance that the world's trade rules are changing.

The key to closer relations was to agree to disagree on some key points and then get on with looking for opportunities that could provide win-win scenarios for both groups.

"The two boards and management started talking and we decided there are some things we are never going to agree on and we put them in a basket and put them to one side."

With some "too-hard" issues out of the way they could get on with doing business.

The DFA has formed a 50/50 joint venture company, called Dairy Concepts, with Fonterra. It is already profitable and has opened a new processing plant in Portales, New Mexico.

Many US consumers of parmesan cheese are already pouring on to their pasta a product made from a combination of New Zealand and US milk.

The partnership has also allowed Fonterra to become the largest US exporter of skim milk powder.

"DFA belongs to another organisation called Dairy America and we've agreed that the export of Dairy America's powder - 80 per cent of powder produced in US - goes through Fonterra," Camerlo said.

"Fonterra understands the world market price and how to move it without affecting the price."

At the Portales plant, Dairy Concepts is making skim milk powder and the first milk protein concentrate (MPC) produced in the US. "These things are done with NZ technology," Camerlo said. "What's in it for us is is we learn and we use our product. What's in it for NZ is the use of their product.

"The closer you get to working with people the more you learn you all have problems the same."

Although most of its product is for the domestic market, DFA exports to Mexico and Japan.

"New Zealand is the biggest dairy marketer in the world. DFA wants to learn from New Zealand and work with New Zealand to supply those markets," Camerlo said.

The situation is the exact opposite for Fonterra, which sells 5 per cent of its product locally and exports 95 per cent.

"Our domestic market is 95 per cent, so we're not anxious to give that up to New Zealand.

"Yet we see trade negotiation is going to go on, the Administration is wanting to open up markets and we want to do it in a fair equitable way so that in the end we don't get hurt. So we don't hurt our farmers. And we want to partner with the best."

DFA has a different structure to Fonterra but is not without the political difficulties the New Zealand company has faced.

"Politically and culturally farmers don't like organisations. They like to be independent," Camerlo said. "We have a structure we call: big in the city and small on the farm."

In other words DFA is happy to act like a big player in the markets where it sells but tries to remain small and local when it comes to its members.

It has set up seven councils across the US, responsible for pricing and marketing the milk but they all come under the shell of the corporate organisation.

"New Zealand is the same size as my state of Colorado. We have so much geography to cover that our governorship has to be different to Fonterra," he said.

But otherwise Camerlo sees plenty of common ground.

"There's no difference between a New Zealand farmer and a US dairy farmer. And when you look in the milk tanks its all the same. Milk is milk. We really need to learn to work together.

"As we look at the horizon we think that there are many more opportunities for the companies to work together both in the US and internationally."

The DFA and Fonterra boards plan to meet twice a year, once in New Zealand and once in the US. In the interim management will team up to set structures where they can work more closely.

"We've asked management to look down the road and see what more business we can do."

Dairy Concepts

A 50/50 joint venture between Fonterra and Dairy Farmers of America.

Founded May 2000

Has eight US factories, the largest at Greenwood, Wisconsin, and Portales, New Mexico.

Annual revenue of $586 million.

Produces 80,000 tonnes of dairy powder, parmesan cheese, milk protein concentrate and dairy flavours.