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Sam Morgan's South American adventure

TradeMe founder Sam Morgan has developed a new twist on the dairy boom: doing it in Brazil.  Just as New Zealand farmers contemplate the end of their dream run, Morgan and a former Fonterra executive, Simon Wallace, are generating huge returns through Leitissimo, a Kiwi-owned, Brazil-based dairy company that's taking the best of Kiwi expertise and combining it with awesome growing conditions--to serve a massive market. 

Leitissimo estimates that it can produce an average 35,000 litres of milk per hectare a year, more than double the sort of production possible in New Zealand. One experimental pasture stocked with Leitissimo’s best-performing cows produced 50,000 litres of milk per hectare per year.

It also reckons that even just the part of Brazil they are in has the potential to produce as much milk as the whole of New Zealand. But, then as the company founder Simon Wallace points out in the latest edition of Idealog magazine, “in this state alone, which is about the size of France, we have a 800 million litre deficit in terms of milk production, so there’s a great market right here.”

The Leitissimo project reveals something scary about our tiny land that we need to face up to: our success is not in the soil, rain and sun that we’re blessed with. Other places are blessed too. Our future lies in the brains we have between our ears and the courage in our hearts.

The dairy boom is a mixed blessing, on the one hand adding a welcome boost to the economy. And let’s not be ungrateful. After all, what exports have I created this year? But it also takes us back to a colonial economy—a bunch of farmers serving cheap food for faster developing economies than ours. While the Brazilians develop a hi-tech economy including a space programme, we’re farming cows.

Morgan should know. “I think it is an interesting model for New Zealand,” he says. “We need to provide our best talent with the greatest opportunities. If those exist elsewhere in the world then they should go there, but keep Kiwi ownership where we can.”

But is this a malignant form of brain drain that could be damaging to New Zealand Inc?

Not so, according to Wallace, Moore and Morgan. Far from competing with New Zealand farming interests, they see this as just another extension of them. 

"The whole concept has been about embracing the world. It’s about feeding more milk into that network, just from a different geography. The value of Fonterra is not that milk is produced in New Zealand; it is that milk is produced in a lot of places and then traded around the world. New Zealand dairy farmers have a massive investment in a global business, not just a few dairy farms in New Zealand. We have done this since the start; it’s just that sometimes in the semantics and discussion that goes on we get a little bit protective or focused on the land holding.”

New Zealand has an addiction to a whitish-yellowish powder. Milk powder, that is.

At $10.4 billion a year, dairy is about 26 percent of our total exports (see NZIER exports report). That’s up from 17 percent in 2003. And all told, it’s almost as much as all the meat, wool, wood and wine exports combined. It certainly dwarfs our hi-tech manufacturing exports.

New Zealand’s becoming a one trick, um, pony. In some towns, dairy is the only industry that’s writing the cheques. That and the welfare. 

How we deal with the boom in dairy (see Futures Research report) in the next few years will define us. There are many questions to answer. I can count at least three:

    1. How long will the boom in milk prices last? And what will happen when, as all booms must do, it ends?

    2. At what cost is this boom happening: environmentally and strategically? Can we afford to have so much resource tied up in one industry?

    3. Where’s the intellectual property in all this?

On this last one, you could argue that cheese and butter have at least added value through processing and branding. And yes, there’s a huge amount of IP in Fonterra’s distribution and marketing network.

But flogging Kiwi-grown commodities like these won’t buy us computers and cars. There needs to be more value in the chain.

In the next few weeks we’ll be inviting you and the occasional expert to suggest answers to these questions.
Is dairy becoming a powder addiction? What do you think?