The world largest dairy exporter, Fonterra, traded less than one-third of its products through the Global Dairy Trade (GDT) auctions last year.
The New Zealand dairy giant offered 814,824 metric tonnes on the GDT in 2015, equating to about 30% of its domestic production, with the balance of dairy products sold through direct to customer sales.
Fonterra represents 25% of all globally-traded dairy product volume, exporting 95% of its domestic produce to over 140 countries.
In 2008, it established the fortnightly GDT auctions with the aim of providing a “reliable, transparent, price discovery platform” for globally-traded dairy commodities.
What Fonterra sells through Global Dairy Trade
Contrary to the understanding of some in the Irish dairy industry, there is no minimum percentage of its milk products that Fonterra is required to sell on the GDT.
“Fonterra is confident that the current volumes offered on GDT provide transparency and effective price discovery,” Fonterra’s Managing Director of Global Ingredients, Kelvin Wickham, told Agriland.ie
“While we have reduced GDT volume this year, the volumes offered in 2015 were similar to those offered in 2010 and 2011, when the outcome was accepted as an effective price discovery mechanism.”
Significant, but commercially sensitive, volumes of Fonterra milk products have been sold direct into China in recent years.
“China is an important market for us, as are all geographies and customers. Given the diverse range of markets we service, individual performance in specific regions vary from year to year,” Wickham said.
He added that the dairy cooperative remains committed to the GDT.
“We focus on providing reliable forecasts, and sufficient volumes to encourage customer activity to deliver pricing outcomes representative of the broader dairy market. As an effective sales channel, volume will move in line with variation in milk supply, and the relative performance of our other sales activities.”
The Global Dairy Trade remains owned by Fonterra Cooperative Group, but operates separately and independently from its owners through audited separation protocols. All auctions are conducted by an independent trading manager, who must comply with the Global Dairy Trade market rules.
The dairy commodities the Global Dairy Trade trades includes skim and whole milk powders, anhydrous milk fat, butter and butter milk powder, cheese, lactose and casein products.
‘Bitching And Moaning About The GDT’
Federated Farmers of New Zealand Dairy Industry Group Chairperson, Andrew Hoggard, said Fonterra has been responding to the low Global Dairy Trade prices in the last couple of years by trying to put as much product as possible through higher value.
“As farmers, this is what we want to be seeing: moving as much of our products into higher value streams and capturing more of the value add for ourselves,” Mr Hoggard said.
“One of the key things about the Global Dairy Trade is that it’s there to clear the market. So, in theory, you don’t hold onto excess product, and that way buyers don’t have you over a barrel: if they know your holding onto stock they can negotiate harder.”
He said the amount of product Fonterra does or does not put on the Global Dairy Trade has minimal impact on international dairy prices.
“Demand is weak from China, Russia has closed its borders, other markets are disrupted by various instabilities and supply around the world is up, particularly Europe and the US, with the US busy dumping product with its Co-operatives Working Together programme, which they try and pretend is ‘assistance’ and not an export subsidy.
“If we want to increase the world price of milk then those things need to switch around. It really is as simple as that, and no amount of bitching and moaning about the GDT is going to change that,” Mr Hogard said.
“If Fonterra was to try and stockpile product, all that would be happening is that Fonterra suppliers would have to be subsidising higher prices for everyone else.
“Because, in effect, we would be holding onto product, thus not selling it and making money, but instead costing money through increased storage costs.”
Mr Hoggard said the Global Dairy Trade should “definitely not” be scrapped as within New Zealand it is very important for transparency around the Fonterra farmgate milk price, as well as providing a great deal of transparency for other farmers – on and offshore.
“To me, as a farmer, it provides huge transparency. I want to know what is that milk in my vat worth … Through the farm gate milk price, on which the GDT has a very big impact, I see what the milk in the vat is worth, and through the dividend I see what the investment I have made in Fonterra returns,” Mr Hoggard said.
“The fortnightly Global Dairy Trade auctions also give you a great heads-up as to where things are tracking. So if next week’s auction isn’t up dramatically, that gives me a pretty strong gut feeling that NZ$4.60 may not be attainable this season, and next season could well suck as well.
“So that helps inform decisions I am making on farm, rather than me sticking my head in the sand.”