Sunday, 20 March 2016

How do you calculate organic milk value?

Grass-fed organic milk - NYC, 2016
That was the headline for page 26 of NZ's Rural News this week and it's a perfectly good question.

Consumer willingness to pay is the obvious starting point. If consumers didn't value organic as a separate form of milk, there would be no difference in the wholesale price of organic and non-organic milk powder. The recent 520% premium shows there is extra value and tracking this differential over time would be the basis for a pretty reasonable method of calculating organic milk value. There you go: 64 words. 

Jacqueline Rowarth's piece in the Rural News is nothing like that. It starts off admitting industry projections of 12% cumulative annual growth rates over the next five years, while omitting the "cumulative annual" bit and so leaving readers free to think of 12% growth in total over five years. Then we quickly settle into the main task: sledging Fonterra's organic business. 

Recognising the two-sided nature of this business, Jacqueline has two black hats: one for farmers and the other for Fonterra. 

For farmers, well, it seems that the science of "comparing farm management systems" is really difficult, but these clever people at Massey reckon organic is less profitable per hectare and exposed to greater climate risk. Not only that, but your livestock values will fall because homeopathics don't work. Plus all your soil will deteriorate in fertility which will cost heaps to replenish later once you come to your senses. So, y'know, don't even think of it. Oh and don't forget that Fonterra cancelled organic contracts abruptly back in 2009. Its all super risky, everywhere you look.

And as for you Fonterra, what on earth do you think you're doing, getting back into the organic market?  Obviously it's because you haven't given due consideration to my brilliant plan, which is that "rather than taking a punt on organic [it] might be more valuable and less risky for everybody" if we instead tell everyone that NZ dairy does "not involve excessive use of pesticides, fertilisers, ionising radiation and sewer sludge, nor animal hormones and antibiotics". 

That's my summary of Jacqueline's column. She has a strong aversion to organic dairy and thinks Fonterra should market our more open air systems. Which it does already of course, including by recently giving guidance on PKE usage and announcing a testing procedure. 

More fundamentally: why is this a choice between two alternatives? Why shouldn't Fonterra pursue an organics business alongside its main strategy? Don't they reinforce one another?  

I don't usually read Jacqueline Rowarth's material. Now I remember why.


  1. Agree completely John. is is a pity the polarized views she and others bring gets in the way of genuinly considering different approaches our industry could work on.
    Graham Clarke :)

  2. Nice information, if i personally tell about organic milk we calculate form cows and goats that eat grasses.