September 29, 2011

World dairy prices may fall on recession

Global dairy prices could fall if the West slips into another recession, but the long-term prospect for the sector is good, according to Theo Spierings, new chief executive at dairy co-operative Fonterra.

"When you look out to 2020, demand in the world is going to outpace supply, so in that sense I don't see a big issue," Spierings said. "But short-term if the West goes into a recession again ... it could be a huge emotional reaction with people not spending."

"So there is volatility in the market and the volatility will increase if more is going to happen in Europe and the US," he said.

Spierings, who took over at Fonterra this week, was acting chief executive of Royal Friesland Foods and in 2008 led that company into a merger with Campina, creating Royal FrieslandCampina - the world's fifth biggest milk processor.

Dairy demand would grow by 160 billion litres by 2020, with New Zealand's supply expected to rise by five billion litres - 3% of the total, Spierings said.

"I do believe that the co-ops in the world are very well placed because they have the ability to control the whole chain," he said. "We are in good position as our shareholders not only supply capital, but also supply milk."

"I do see potential for Fonterra to use the integrated business model in other areas of the world linked to other milk pools," he said.