Strong export demand

New Zealand’s dairy sector is the country’s largest exporter, with butter shipped to more than 80 di erent markets. While the industry was hit by COVID-19, export sales have returned close to prepandemic levels, with positive growth ahead Barbara Barkhausen

New Zealand’s butt er industry is thriving, despite the disrupti on of COVID-19 and Russia’s invasion of Ukraine, with strong export demand, parti cularly from China, but also from other markets worldwide, especially in the ASEAN (Associati on of Southeast Asian Nati ons) bloc.

Major exporter Fonterra is also looking ahead to a world that increasingly cracks down on carbon emissions, introducing the fi rst carbon-zero certi fi ed organic butt er made in New Zealand, refl ecti ng how consumers are seeking more sustainability in their food purchases.

The past fi ve years have seen the butt er manufacturing industry in New Zealand performing strongly. The industry relies heavily on export markets – unsurprising given its domesti c market comprises just 5M people.

Overseas sales have boosted industry performance from 2017 to 2022. According to a report from research company Ibis World, ‘Cheese, Butt er and Milk Powder Manufacturing in New Zealand’, the country’s dairy industry generated revenues of NZ$22bn (US$15bn) in 2020-21 from exports and domesti c sales of all products, while its revenue is expected to increase by 5.6% in 2021-22 as recovering economic conditi ons globally increase world dairy prices.

“Demand for industry products is projected to increase in export markets such as China over the next fi ve years,” Ibis World says in its recent New Zealand dairy update, released in March 2022.

“Products from New Zealand have a high-quality reputati on, which is likely to become a key selling point to increasingly health-conscious consumers.”

According to dairy industry organisati on the Dairy Companies Associati on of New Zealand (DCANZ), New Zealand butt er was exported to more than 80 diff erent markets in 2021. “Overall, the dairy industry is New Zealand’s largest exporter, accounti ng for around a third of all export revenues,” says executi ve director Kimberly Crewther.

Like many other industries, New Zealand’s butt er export industry felt the impact of the COVID-19 pandemic.

According to S&P Global’s Global Trade Atlas, the value of New Zealand’s total butt er exports decreased from US$1.3bn in 2019 to US$1bn in 2020. However, in 2021, exports returned close to prepandemic levels and the value of New Zealand’s butt er exports increased to US$1.2bn, a 15.5% increase on 2020.

During the pandemic, New Zealand’s butt er exporters struggled like the rest of the world, with global supply chain issues caused by a range of problems including port closures, container shortages and travel restricti ons, says a statement from New Zealand dairy major Fonterra, a dairy co-operati ve owned by about 10,000 farming families. The cost of shipping and freight has also increased since the start of the pandemic.

The country’s relati ve geographic isolati on did not help. The Fonterra statement stresses that in 2021, shipping companies oft en bypassed New Zealand, with available shipping capacity dropping by 20% and shipping ‘schedule integrity’ (the reliability of mariti me shipping schedules) plunging from a long-term average of 80% to below 35% in the year.

Exporters also faced temporary port closures and restricti ons due to port congesti on, as well as a container shortage. However, despite these challenges, Fonterra shipped a total of 2.59M tonnes of dairy products, including butt er, for the year ending 31 July 2021, an increase of more than 4% year-onyear.

According to Stati sta, a German company specialising in market and consumer data, New Zealand produced around 470,000 tonnes of butt er in 2021, a major export commodity.

Apart from Fonterra, there are other leading players in the butt er market in New Zealand, such as Whitestone Cheese and Lewis Road Creamery, both of which manufacture butt er.

Although New Zealand also exports its dairy products to countries like Australia, Indonesia, Japan, Malaysia, the

Philippines, Saudi Arabia, South Korea, Thailand, the United Arab Emirates (UAE) and the USA, China remains the most important market.

Fonterra spokesperson Henry Acland says there is strong demand from Chinese buyers for New Zealand butt er.

“For Fonterra, in 2021, our greater China (mainland China, Taiwan, Hong Kong and Macao) normalised EBIT (earnings before interest and taxes) increased 10% to NZ$403M (US$276M), driven by higher sales volumes and improved margin in the food service channel,” he says, citi ng data from the Fonterra 2021 Annual Report.

The company has also exported products – primarily butt er – to Russia unti l March, totalling about 1% of its annual exports. While food, including dairy, is generally exempt from internati onal sancti ons imposed on Russia, Fonterra advised in a 28 February e-mail that it had “suspended shipments of product to Russia while we conti nue to monitor developments”.

The DCANZ stresses that Russia is only a small market for New Zealand dairy exports and “as such, the New Zealand exhibiti on Gulfood 2022.

According to Fonterra’s Acland, products such as Carbonzero butt er are initi al short-term soluti ons to help customers and the environment, while Fonterra works towards net zero aspirati ons for its enti re output.

The dairy co-operati ve aspires to be net zero carbon by 2050 and intends to invest around NZ$1bn (US$680M) in sustainability initi ati ves over the next decade.

“Much of this will be required to upgrade our core manufacturing assets as we look to decarbonise our footprint and improve water use and quality,” says Acland.

This will involve Fonterra investi ng in technologies to reduce agricultural emissions, including new dairy fermentati ons that can be fed to cows to inhibit the producti on of methanogens that create methane.

The project works with the co-op’s methane-busti ng Kowbucha probioti cs. These stem from Fonterra’s own dairy culture collecti on stored at the Fonterra Research & Development Centre (FRDC).

Working with AgResearch, one of New Zealand’s largest Crown Research Insti tutes, Fonterra scienti sts were able to show that some Kowbucha probioti c strains reduce methane by up to 50%.

Overall, the New Zealand dairy industry is working in partnership with other New Zealand primary resource sectors (such as forestry and other agricultural sectors) and the nati onal government to support farmers who cut greenhouse gas emissions.

According to DCANZ, this includes targets for all farmers to have individual farm greenhouse gas reports by the end of this year as well as a system for pricing agricultural emissions. These requirements are included in NZ climate change legislati on (the Climate Change Response – Zero Carbon – Amendment Act) and will be delivered through ‘He Waka Eke Noa’, a fi ve-year industry-government-Māori community-farm sector partnership set

Fonterra says that New Zealand’s grass-fed farming model means that its milk has a lower carbon footprint than the global average and has recently launched the country’s fi rst carbon-zero certi fi ed organic butt er. Photo: Adobe Stock

industry is not anti cipati ng signifi cant direct trade impacts,” executi ve director

Crewther says. “Demand for dairy products, including butt er, is strong globally and this strength of demand, coupled with ti ght supply conditi ons, has resulted in a notable uplift in prices over the last six months,” says the industry associati on.

Apart from dealing with Russia’s invasion of Ukraine, the New Zealand butt er industry has also had to assess commercially important changes in consumers’ demands across Europe and North America.

“Global customers and consumers want to know where their food comes from and the environmental impact it leaves,” says Fonterra spokesperson Acland.

“We believe New Zealand milk is the most valuable milk in the world due to our grass-fed farming model, which means our milk has a carbon footprint one-third the global average for milk producti on.”

According to the most recent report on the dairy industry in New Zealand from market researcher Euromonitor Internati onal, these demands are also being made by New Zealand consumers.

It notes that New Zealanders are increasingly aware of the environmental impact of dairy producti on, which can include run-off polluti ng inland waterways, and the release of greenhouse gas emissions from catt le methane.

Recently, Fonterra has responded to this concern by launching New Zealand’s fi rst carbon-zero certi fi ed organic butt er.

The product has been audited and verifi ed by independent NZ certi fi er Toitū Envirocare. According to the Euromonitor report, this new product also looks to reduce emissions across the supply chain. Named Carbonzero Certi fi ed, it has won the ‘Most Innovati ve Dairy Product Award’ at major food and beverage trade 