A2 shifts from a brand to a category, with Nestle and Mengniu now on board

It is only six weeks since mega-sized Fonterra in New Zealand and medium-sized Freedom Foods in Australia announced their intention to produce A2 dairy products, these being products free of A1 beta-casein.  Since then, both Nestle and Mengniu have stepped up to announce that they too are developing brands for A2 infant nutrition products.

To place this in perspective, and as reported by Rabobank, Nestle is easily the largest global dairy company by turnover, followed by Lactalis, Danone, Dairy Farmers of America and then Fonterra. Further down comes Mengniu at number 11 globally, but number 2 in China.

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Mycoplasma saga has long way to run

There are both fast-moving and slow-moving Mycoplasma events currently occurring. But in all likelihood, to borrow from Sir Winston Churchill’s famous statement after the Second Battle of El Alamein, this not the beginning of the end; rather it is just the end of the beginning.

The fast-moving events include the official decision of the New Zealand Government to slaughter some 22,000 animals on known-infected properties. Although this will supposedly be completed by the end of May, these farms will not be able to restock for at least another 60 days. In effect, it will be the following season before most of the milking farms can be stocked with lactating cows.

Why has Fonterra gone A2?

It is now more than a month since Fonterra and The a2 Milk Company (A2M) announced that they are going to work together. After the initial shock, and with Malcolm Ellis, National Market Manager from New Zealand-dominant dairy-semen provider LIC describing it as “the biggest announcement to come out of Fonterra since its formation”, there is a need for some analysis as to what it is going to mean.

From the perspective of A2M, there is a simple answer. It will provide a supply base of milk free of A1 beta-casein that A2M desperately needs for the coming years of growth.

For Fonterra, the issues are far more complex.

A2 herd conversion strategies

The decision by Fonterra to work jointly with The a2 Milk Company (ATM) to produce A2 dairy products will have come as a shock to everyone outside the direct negotiation process. This change now throws into sharp relief the challenges for New Zealand dairy farmers in converting their dairy herds so as to produce A2 milk, this being milk free of A1 beta-casein.

The first decision farmers have to make is whether or not they do wish to start on the herd conversion journey. On the one hand, the Fonterra co-operative has been telling its farmer members for all of its 17-year existence that A2 is simply a marketing gimmick. So, for many farmers, the idea that Fonterra is now going to pay premiums for A2 milk will cause bewilderment. 

The High Country is a battle ground

There is an ongoing battle between conservationists and farmers over the future of high-country farming. Groups with recreation interests are also involved in the fight.

For much of the last 20 years, the rules of the battle have largely been determined by the Crown Pastoral Lands Act of 1998.  This has led to some win-win situations for all parties, but has also been mired in controversy.

I have written about some of those issues here and here, and in particular the importance of understanding the full extent of the perpetual land-use rights granted to runholders under the 1948 Land Act. Without an understanding of New Zealand land law, little else that has been happening in relation to high-country matters makes sense.

More recently, the battle ground and rules of the game have changed such that it is through the RMA (Resource Management Act) of 1991 and various subsequent amendments where disagreements are now fought out. District Plans and the Environment Court are the new theatres of war.

A2 plus Fonterra is a seismic shift

The joint venture agreement between Fonterra and The a2 Milk Company (A2M) to work together producing dairy products free of A1 beta-casein is a seismic shift for both the New Zealand and global dairy industries. Fonterra has consistently expressed strong negativity for close on 20 years about such products – known colloquially as ‘A2 milk’ – and as recently as 2016 the Fonterra CEO said it was just a ‘marketing concept’.

In essence, Fonterra has done a U-turn.  It won’t have been an easy decision. There will be some challenges explaining and defending the U-turn to its 10,000 farmer members, most of whom, having listened to Fonterra’s previous messaging, have yet to start converting their herds.

How leasehold values have influenced High-Country reform

Some 20 percent of the South Island is what is commonly called the ‘High Country’.  These are the pastoral lands that lie to the east of the alpine spine that runs the length of the island.

These are also the lands that the Government, following the 1948 Land Act, ‘alienated’ (to use the legal term for privatisation) via perpetual leases for pastoral purposes.

More recently, the Government has been buying back the leasehold rights to the higher country on some of these properties, and converting the leasehold tenure to freehold tenure on the more productive country.

High-country tenure reforms are important for all New Zealanders. This is because of the scale of this land and its importance, not only for pastoralism, but also for landscape values, tourism, recreation, conservation and also as a water resource.  In a democracy, we all need to have an understanding of what our Governments – past, present and future – are doing on our behalf.