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Agribusiness Report: International dairy customers value sustainability - Fonterra

"A lot of people thought sustainability went away in Covid times, but that's not correct. It is absolutely back and in the forefront of most of our major customers' minds", says Fonterra's Kelvin Wickham.

Amsterdam-based Wickham is the dairy co-operative's chief executive officer for Africa, Middle East, Europe, North Asia and the Americas. His role covers consumer, foodservice and ingredients products. He also has responsibility for the NZMP ingredients business.

It's a job that in normal times would involve considerable travel. Yet Wickham arrived in Amsterdam early last year on the first day of lockdown. He says there has been some kind of lockdown in place for the last 15 months and things are only now opening.

Open means travelling within the European Union, the UK is still off-limits and so are the other markets where Fonterra operates.

"The markets I'm working across, from the Americas, through the Middle East and Asia, they've all had their moments. The wonderful thing about food and dairy is that we're an essential industry in most locations and we've managed to keep the supply chains going, but not without difficulty.

"We've had people sleeping in factories in Saudi Arabia. We've had quarantines where we have taken all the vulnerable people out. In places like Brazil and Chile, the sheer number of people who got Covid means you have to manage through that. We're out of the worst in the current phase. We've managed to navigate through these supply chain disruptions and it has been fantastic to have a New Zealand supply chain that is open to the world."

Looking at Fonterra's business-to-business customers he says: "Household names like Nestle and Starbucks have been very public. They've been putting out reports and talking about their goal to be net zero carbon by 2050. That comes back straight to their suppliers because as much as 90 per cent of the footprint of their brands that you see on supermarket shelves are outside of their control.

"Then you have the wider issue at the government level. Governments are looking at sustainability across the whole food chain."

The question for Fonterra is how to engage with the issue.

Wickham says New Zealand is in a unique strong position because the carbon footprint per litre of milk produced here is around a third of the global average. That means we are 70 per cent less than the average and about 45 per cent less than major world milk producers.

"This makes Fonterra quite interesting to talk to if you are a global multinational and you're looking to reduce your carbon footprint. You can automatically take your footprint down for your ingredients."

Big multinational food companies like to take provenance right back to the farm gate.
"In some cases, they want to go beyond the farm gate. That is something the dairy co-operative already does and that gives Fonterra an advantage. It is not something intermediate dairy traders are able to do.

"Fonterra has another value proposition for the market. We combine New Zealand grass-fed, New Zealand cared for animals and genetic modification free. Customers are willing to pay a premium to be able to use this in positioning on their brands. This has helped us get a 50 per cent premium on a highly functional protein that's ready to mix for medical use," he says.

"It is easier to get a value premium for a product like dairy when you can make hard claims. Say the product is organic, you need a recognised agency to back the claim.

"Soft claims are along the lines of 'New Zealand farmers provide better animal care'. These are still useful for getting a premium, but they are not as powerful as hard claims."

Wickham points to Fonterra's NZMP Carbonzero-branded organic butter as proof of the efficiency of hard claims. It is certified as zero carbon and is sold as an ingredient to businesses in North America.

The certifying company traces the product from the farm, through manufacturing, distribution and even the way the packaging is disposed of by customers. This has the opportunity for a quite significant price premium.

Many of Fonterra's multinational partners aim to meet their carbon goals, which are in line with targets established by the Paris Climate Accord, instead of resisting change. The company is getting there now with its ingredients because of decisions taken some time ago.

 

"New Zealand milk output is not growing, but global consumption is," he says. "That means the opportunity for us is to improve our portfolio mix over time.

"Not all customers in all markets are looking for the same things. How we segment customers is important. It's the same on the consumer side of the business; there is no single consumer need or demand. There are markets where people are in the 'me' phase. These people do care about the environment and whether animals are pasture raised, but it is more about 'me and my family'.

"There are other markets where people are in the 'we' phase. They take a wider view and are concerned about the impact of farming on water, environments and the like. The question is tailoring and supporting brands across these markets. We need to embed sustainability into the different offerings. This is something we are working through now."
In practice this means that the branding and marketing support for a product line can vary from market to market to cater for different sentiments.

One of the frustrations in the dairy industry is a widespread misunderstanding of the nutritional value of milk compared to the plant-based alternatives.

"It misses the point about the nutrient density of milk. Milk is a high-quality protein. The amino acid profile of milk versus some of the low-protein vegetable-based ones is not in the same league.

"I think the dairy industry globally needs to do a better advocacy job about the nutrition value of dairy and why it should be at the table as part of the sustainable food systems of the future."

 

The challenge in this area is that it is hard for an organisation like Fonterra to communicate technical information about the bioavailability of milk protein to consumers.

"We're doing the science and we're working with scientific bodies and regulators. If you look at the back of an almond milk product, you'll see it has about 0.8 per cent protein. It's three times the price, there is nothing in there and its carbon footprint is worse, but that's completely lost on consumers who think they are doing the right thing for the planet."

Another challenge facing Fonterra is broader greenhouse gas issues. Wickham says the co-operative is now working across the dairy industry to encourage wider improvements in greenhouse gas emissions. The high-level view is that if everyone were to adopt best practice the emissions would drop considerably.

In some ways this is harder for New Zealand producers because, on average, our emissions are already at a third of the level found elsewhere. The positive part of this is that we are starting from a better place than other dairy producing countries. The negative is that each extra step is progressively harder.

Most of the climate impact focus is on carbon emissions — when carbon dioxide is released into the atmosphere. Yet so long as there are animals in the picture, there will always be another greenhouse gas: methane.

It is unlikely methane emissions will ever get all the way to zero because it is produced so long an animal is alive. It is formed as they breathe and burp.

 

Wickham says this is a hard discussion to have. It doesn't help that, unlike carbon dioxide, methane is a short-lived gas. This means you don't have to get it to zero, instead there is a need to reduce the amount produced. Yet, if Fonterra and the dairy sector can solve methane emissions it would cut as much as 20 per cent from New Zealand's total emissions.

Fonterra is exploring ideas such as using natural fermentation to reduce methane. Its scientists have developed a kombucha-like treatment which it calls Kowbucha.

This approach is promising because the treatment helps inhibit the micro-organisms in a cow's gut that produce methane.

Researchers are also looking at changing animal diets, feeding cows plantain or other foods.

Wickham says: "We don't have the solutions today. Around the world no-one has the answers yet.

"It's a huge challenge."

NZ Herald

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