In coming years, we are likely to see the colour of New Zealand dairy cows change from predominant black and white to a mix containing more brown and brindle. It will be a response to changes in the relative price of protein and fat.
Black and white Friesian cows produce about 1.2 kg of fat for every kg of protein. In contrast, the brown Jerseys produce about 1.4 kg of fat for each kg of protein. Jersey milk is also richer with less water. Jersey milk is about 5.7 percent fat whereas Friesian milk is about 4.5 percent.
For many years, protein has been worth a lot more than fat, but in the last two years that has changed. Milk protein prices are the lowest they have been for many years whereas fat prices are at record highs. This is the reason why butter is now so expensive in our supermarkets.
There are multiple reasons why fat and butter have come back into favour, but a key one is that the public has become convinced that butter is no longer the health demon it was portrayed to be. Many medical researchers would say that the public has actually got confused between the different effects of saturated versus non-saturated fats, but in the market place it is what the public thinks that counts.
Media articles always express the price that farmers receive for their milk as a price per kg of ‘milksolids’ (written as one word, often with a capital, and also abbreviated to S/kgMS). This is defined as the amount of fat plus protein combined. Other solids – mainly lactose but also minerals – are ignored in the pricing calculations. On rare occasions when these other solids are included, then ‘milk solids’ is written as two words, and never with a capital. So there is lots of potential confusion for the uninitiated!
When it comes to actually paying the farmers, the companies pay separately for fat and protein. They also charge a penalty for the natural water in the milk, because most of this has to be evaporated-off to produce long-life products.
Given that natural water in milk is just a nuisance for manufacture of long-life products, New Zealand has bred a different type of cow compared to elsewhere in the world, where payments are often on a per litre basis. New Zealand cows might look the same as cows elsewhere but they produce thicker milk.
Coming back to the pricing issue, the current prices we are seeing will lead increasingly to Friesian farmers with low fat percentages being paid less per kg of milksolids than the quoted milksolids prices, and those with the brown Jersey-type cows will be paid more.
Fonterra and other companies base the payments for fat and protein on a three-year rolling average of market price relativities. Accordingly, these effects will be increasingly felt over coming years, with this year really just the start.
Changing the breed of the cows is something that farmers are not talking about widely just yet. It will only be when they see discounts coming through into their milk payments over the next two years that it will come to the fore in their thinking.
Many farmers already have KiwiCross cows which are a mix of Friesian and Jersey, so they are already on the journey. These KiwiCross cows also show some hybrid vigour benefits. However, farmers will also have to factor into their calculations the higher beef value of male Friesian calves versus Jerseys.
As from next year, farmers will also see these differences starting to show up in the ‘breeding worth’ values of bulls in the breeding catalogues. Jerseys are going to leap ahead and Friesians will drop back. There will also be changes of relative value within a breed.
Changing price relativities for fat and protein are also leading to other behaviours in the international market place. With whole-milk powder now worth much more than skim-milk powder, a new product has come to the fore called ‘fat-filled powder’.
This fat-filled powder is a mix of skim-milk powder and vegetable fat, with the predominant vegetable fat coming from palm oil. This product is widely used in poorer countries.
Before people get too upset – and please don’t shoot the messenger – this product is actually likely to have a better health profile than the genuine whole-milk powder. But no doubt the fact it comes from palm oil will upset many people, who understand neither the ubiquitous presence of palm oil in our food chain nor that it is a healthy fat. And before readers use this information to lambast the New Zealand industry, please remember that the manufacture of fat-filled powder is predominantly from European-sourced skim-milk powder. However, some New Zealand skim-milk powder will also be used this way.