What! Could the New Zealand Dairy Industry be in serious trouble?

This article is bought to you by Pepperton and Forest Springs Merinos.

By Danielle Appleton - Consulting & Contracting ♦︎ Engineer/MBA ♦︎ Future of food ♦︎ Business Improvement ♦︎ The ultimate flexible resource

Over a month ago I spoke at TEDxTauranga on how dairy's huge role in earning export dollars for New Zealand is facing a serious threat. A threat from synthetic dairy products. Synthetic fibres triggered the decline of New Zealand's wool industry in the '80s. Is history on track to repeat itself?

Dairy exports are a pillar of our national economy and identity. Making ours the most exposed country in the world, to the technology being rapidly developed creating real dairy products far cheaper than traditional farming can. Creating real dairy products, with no cows involved.

My TEDx video is coming out soon. For now, here's the transcript from my talk at with some bonus material for those wanting to dig a little deeper.

Ad - Pepperton Poll Dorset & White Suffolk Stud at Elmore, Vic - Ad
Ad - Forest Springs Merinos has its on-property Ram sale on the 26th of September - Ad

I memorised 1752 words, stepped on stage and scared myself silly because want to get more people talking about this issue before it becomes a problem. Change is coming for the New Zealand dairy industry as we know it. But times of change are also times of new opportunities, and we need to act now to take advantage of this new technology, or risk missing the boat.

There's a lot to debate and discuss — so if you find the article below interesting please share, comment, start discussions with others and let me know what you think.

New Zealand is economically reliant on a dying industry, the dairy industry. But it doesn't have to be.

Why do I care about the future of NZ Dairy?

As a little girl, I went to Goodwood Primary school in the Waikato. My favourite day of the year was calf club day, all of the kids would bring their pet calf or lamb, to show off how fluffy, adorable and well-behaved they were. My education came full circle when I completed my engineering degree, and started working at the dairy factory just down the road from my old school.

I know a lot about how New Zealand turns milk into money, having spent over 10 years in the industry. First in dairy factories and labs, where I got my Masters of Dairy Science & Technology. Before moving to head office, to make moving and selling dairy products, more efficient. Where I then completed my Masters of Business Administration. Since then, I've founded my own dairy-related startups, the most recent being Evolution Meadows a plant-based dairy alternative.

Ad - Pepperton Poll Dorset & White Suffolk Stud at Elmore, Vic - Ad
Ad - Forest Springs Merinos has its on-property Ram sale on the 26th of September - Ad

So, when I say that New Zealand is economically reliant on a dying industry. I say this with love and concern. The dairy industry has given me so many opportunities, helping make me who I am today. I know as well as anyone, the impact, of a long term dairy downtown.

Is dairy farming becoming a bad long-term investment?

Now, Dairy is a huge topic, so rather than talking about polluted rivers, climate change, health, allergies, animal welfare, the poor financial performance of dairy co-ops or that people are buying fewer dairy products.

My focus is on how the commercial reality. On the emerging technologies that really could remove cows from the dairy industry. And on the massive changes that may be in store for New Zealand as a result.

New Zealand is far too reliant on milk production

Most of us know that today, dairy farming is the economic backbone of New Zealand. A top export earner, it brought in $17 Billion dollars in 2018. And directly hires 38 thousand people, mostly in rural areas and it is the main employer in dozens of small towns. But what many people don't know, is that in most of the countries around the world, people consume all of the milk that their cows produce, within their own countries borders. But we're more than a bit unusual, in New Zealand we produce enough milk to feed our population not just once, but 20 times over.

You can see on the graph that this means, NZ produces almost 5000L of milk each year, for every single one of us. And when you see where the rest of the world is on the graph below, it's obvious that we are the only country in the world anywhere near this reliant on milk production.

While New Zealand is milking it at the moment our dependence on dairy export is startling.

We don't sell milk, we sell bulk food ingredient powders

Something else few people know is that while New Zealand produces massive amounts of milk less than 2% of it is exported as a liquid. When we talk about the NZ dairy industry, we are not talking about the products that end up in your fridge, in NZ, that's a tiny amount of the business less than 4% of the milk New Zealand produces.

What NZ's dairy companies actually do, is make food ingredient powders, usually high in protein, that are put into large 20kg or 1000kg bags. Typically milk powders, and milk protein powders.

These fairly anonymous bags of powder are sold to large food ingredient companies all around the world. 70% of New Zealand's milk is exported in bags like in the photo above. And what happens to these bags of powder after they've been sold?

They go into all sorts of products including some you'd never expect, like the products below, that I bought these from my supermarket. All of these contain dairy ingredients. Are surprised to see that a few of these products contain dairy. Perhaps the panadol. Well, like you most people buying these, have no clue that they contain dairy, and if they do, are very unlikely to think about where those ingredients came from.

Which brings us to a bit of a myth. That our customers love our natural, grass-fed dairy. Sure some absolutely do. But most of NZ's dairy products are food ingredient powders bought by large overseas companies. Who... do not care if these are NZ dairy products made by happy cows eating grass in an idyllic landscape. When it comes to food ingredients, provided they are safe and create the right taste or texture. These ingredients companies ONLY want reliable supply at the right price.

Ad - Pepperton Poll Dorset & White Suffolk Stud at Elmore, Vic - Ad
Ad - Forest Springs Merinos has its on-property Ram sale on the 26th of September - Ad

With dairy ingredient powders, this is something that New Zealand is set up to do very, very well. As a whole country, we have actually specialised in making enormous amounts of ingredient powders - right from the farm to the milk tankers, to highly efficient factory, to the shipping company, and ingredient auction house owned by Fonterra. All of it has been developed to make the export of ingredient powders more efficient. But with the technology coming, that will be radically different and so much more efficient. Our strategy will no longer be enough.

Dairy without cows - will the technology live up to it's potential?

At the moment cows eat-grass, make-milk and in NZ, that is turned mostly into food ingredient powders. There are two main technologies that are going to compete with our dairy exports.

First, Plant proteins. These are made by extracting protein from plants to create ingredient powders. Soy protein has been around for years, and honestly, it tastes rubbish. But the new pea and rice proteins are starting to work as well as dairy. It won't be long before the international ingredient companies can get reliable supply at a better price than dairy proteins. As these new plant proteins get more sophisticated and the price comes down, expect to see these products starting to replace dairy proteins in those day-to-day food products you're already eating - and we won't even notice.

The second new technology is synthetic proteins. Scientists have convinced yeast and other microbes to create dairy proteins. These yeast create dairy proteins that are identical to those produced by a cow. Actual dairy, but without the cow. So how this works is a lot like brewing beer. You take this special yeast, sugar, water - mix it up - the yeast grow, ferment and turn the sugar into dairy proteins. Which can then be turned into ingredient powders.

And although creating dairy products, without the cow is an emerging technology, with lots of challenges. Over the next decade, it has the potential to become much cheaper than normal dairy ingredient powders. The previous Chief Science Adviser to the Prime Minister has said that...

..."[synthetic dairy] may pose an existential threat to New Zealand's pastoral-based economy" - Sir Peter Gluckman

The race is on, to remove cows from the dairy industry

Perfect Day a startup in the States have been working on this synthetic dairy for 5 years, so far they have raised NZ $90M. And earlier this year they partnered with Archer-Daniels-Midland (ADM), who is 4th largest food ingredient company in the world. Five times larger than Fonterra. They are huge in corn and wheat ingredients and plan on adding dairy ingredients to their portfolio using synthetic biology. Cows need not apply. There are some in NZ seeing this opportunity too. Fonterra has taken a small stake in another US startup Motif Ingredients. Motif is also focused on synthetic proteins and has raised NZ $90M so far.

Another company New Culture, launched by some kiwi's, is currently in Silicon Valley making mozzarella without the cow, and they're not the only ones. Huge amounts of money and talent, from around the world, is being poured into developing these new alternative-dairy technologies. You can see some of these companies in the diagram below.

What this really means for NZ is that over the next 5, 10, 15 years these new technologies are likely to take chunk after chunk out of NZ's dairy ingredient exports. Dairy will no longer be our cash cow…

Now, this doesn't mean that I will stop drinking flat whites, or you won't eat ice cream on a Friday night. But in NZ, this is where only 4% of our milk goes - the majority of the rest of it is exported as bags of powder sold as cheap food ingredients - it's this part of the business that will suffer as these new technologies get cheaper and more sophisticated.

Ad - Pepperton Poll Dorset & White Suffolk Stud at Elmore, Vic - Ad 
Ad - Forest Springs Merinos has its on-property Ram sale on the 26th of September - Ad 

Now I know what some of you are thinking… let's adopt these two new technologies to future-proof the industry. But sadly, it's not as simple as New Zealand adopting these new technologies and exporting new food products and continuing as normal. Looking at plant proteins, New Zealand just doesn't have the right type or amount of land to grow mass plant crops that can compete on the international market.

And for synthetic dairy. A huge advantage of this technology is that you can brew up the dairy proteins in a vat, in the same city as your end customers. Fewer transport costs and environmental impact. We are going to have to focus on growing other opportunities to produce meaningful well-paid work for New Zealanders. However, the good news is that we've done this before.

In the 1980s wool was the social and economic backbone, dairy was a far smaller player. This is where many of our glorious cultural icons come from, like Swandari, cheeky sheepdogs, and stubbies. We reinvented ourselves after synthetic fibres caused the bottom to fall out of the wool industry and as a result, we have some of the most resilient farmers in the world. We were forced to diversify our economy after the export value of wool dropped from $1.8 billion in 1989 to only 30% of that today. There's still a wool industry - but it's not the superstar it was. And for many, the transition was incredibly painful.

For dairy ingredient powders, the good news is that the global population is projected to hit 9 Billion by 2050. That's 1.4 Billion more mouths to feed, mostly in developing countries. So plenty of demand for affordable, accessible plant and synthetic proteins and some of the more expensive dairy ingredient powders. All going well, plenty of demand, in the food ingredient space, but significantly increased competition from these new technologies. Something that many people are already working on, is moving from low-cost bulk ingredient powders to premium dairy products. There will be those willing to pay more for luxurious grass-fed, "real dairy" from New Zealand - but premium goods are not what our dairy industry has specialised in… this will mean dramatic changes for how NZ turns milk into money. Not to mention that the other dairy exporting countries like Denmark, Ireland will be scrambling to reinvent themselves in exactly the same way. We do need to be focusing on redesigning the industry to focus on customers who actually appreciate, want, and who are willing to pay a premium for our grass-fed milk products. But the premium model can't feed a growing world. Where I think New Zealand really excels, is in using our extraordinary food growing and processing heritage, to solve food problems.

For example, in the '70s after making cheese, lots of whey was leftover and no-one knew what to do with it. So some Kiwis came up with Whey protein powder - the bodybuilding milkshakes that are so popular. Now whey powder is worth more than the cheese! Another kiwi invention is A2 milk. Their genetic test allows farmers to select their cows that produce A2 dairy proteins, that might be easier to digest. A2 doesn't own cows or factories, it sells branded products and the rights to use their technology, and now they are worth twice as much as Fonterra. And Turners and Growers are breeding climate change-resistant apple trees and they're looking to sell the rights for growing their new apple varieties in Spain.

We could help feed the world by showing others how to grow and process food, in a smarter way. Not selling as much stuff, but selling smarts, ideas, intellectual property. Selling solutions to the world's food problems. Shipping ideas can be complicated but costs nothing in freight. A pretty smart approach for a country on the edge of the world. We could even solve some of the challenges that synthetic dairy will have. So we can own another slice of the dairy future.

Ad - Pepperton Poll Dorset & White Suffolk Stud at Elmore, Vic - Ad
Ad - Forest Springs Merinos has its on-property Ram sale on the 26th of September - Ad