Structure of dairy industry not ideal

Waimarino Bulletin, Volume 2, Issue 3, 19 June 1984, Page 16

Structure of dairy industry

not ideal

The present structure of the New Zealand Dairy Industry has some disadvantages when itcomes to the task of developing new products and new markets. Mr John Parker, Assistant General Manager of the New Zealand Dairy Board, made this point when delivering the Riddet Memorial Address to the Dairy Farmers Meeting at Massey University recently. Speaking on the topic 'Meeting Marketing Realities\ Mr Parker said that the emphasis in the industry was at present going on selling everything that is manufactured. Much of the effortl and the expertise is geared towards thecomplex task of moving big bulk tonnes fast. This means that small but significant new products or new markets are very easily ignored or buried because of more immediate problems. "When Dairy Board Managers have, for example, 350,000 tonnes of milk powder pressing them urgently in the back and their job depends on selling it, they can perhaps be forgiven for not paying too much attention to an interesting new product estimated to move four or five tonnes in the first year, increasing to 100 or 200 in two or three years." "Now that's a disadvantage. The size and the complexity of the task of moving the bulk easily leads us to overlooking opporr tunities." But he noted that the industry has gone some way towards solving this problem with the establishment of

subsidiary companies to the Dairy Board. Set up to add value, to get greater involvement in the marketplace and to help move the industry away from fluctuating commodity markets — a goal he discussed in detail — a largely unforeseen advantage has been the subsidiary companies' independence from the parent body. "They have the same objectives — to make maximum profit£ for New Zealand dairy farmers — but they don't become obsessed by the need to move volumes," Mr Parker said. Therefore, they can nurture new products and new markets that Head Office might not think about, or if it did, couldn't devote time to. Mr Parker then told the 150 dairy farmers attending the meeting that another way to increase new product and market development is to encourage dairy companies to become more innovative. Under the present set up, companies are getting more and more direction from Wellington on what their production, product mix and technical input should be. Coupled with this, dairy companies are not taking risks to develop new products and new markets, because rewards are not commensurate with the risk taken. A situation currently exists whereby a dairy company must share the rewards from a new development with companies that are not involved in the initial risk-taking. This, according to Mr Parker, comes from a misguided desire within the industry for equality of results among dairy companies, when in his opinion equality of opportunity has always been the desirable goal. He went on to stress that a dairy company should reap the benefit if its research and development team develops a new and profitable product. The company could simply get a royalty. It would mean not that the manufacture of a new

product has to be confined solely to the innovative company. Nor that the strong should not assist the weak, or that new ideas from a company shouldn't, after a reasonable payback period, contribute income to all the industry. "When all is said and done, that is a basic tennet of our cooperative industry, but we must reward enterprise."

In his concluding remarks, Mr Parker said he could see no difficulty with dairy companies becoming involved directly in export markets where they have a product that is unique and where basic good sense rules of cooperative pricing can be observed. "Getting producers closer to the market makes good sense," Mr Parker said.