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Idealog—in the ideas business

Sam Morgan’s South American adventure

By Vincent Heeringa,

TradeMe founder Sam Morgan has developed a new twist on the dairy boom: doing it in Brazil.  Just as New Zealand farmers contemplate the end of their dream run, Morgan and a former Fonterra executive, Simon Wallace, are generating huge returns through Leitissimo, a Kiwi-owned, Brazil-based dairy company that's taking the best of Kiwi expertise and combining it with awesome growing conditions--to serve a massive market. 

Leitissimo estimates that it can produce an average 35,000 litres of milk per hectare a year, more than double the sort of production possible in New Zealand. One experimental pasture stocked with Leitissimo’s best-performing cows produced 50,000 litres of milk per hectare per year.

It also reckons that even just the part of Brazil they are in has the potential to produce as much milk as the whole of New Zealand. But, then as the company founder Simon Wallace points out in the latest edition of Idealog magazine, “in this state alone, which is about the size of France, we have a 800 million litre deficit in terms of milk production, so there’s a great market right here.”

The Leitissimo project reveals something scary about our tiny land that we need to face up to: our success is not in the soil, rain and sun that we’re blessed with. Other places are blessed too. Our future lies in the brains we have between our ears and the courage in our hearts.

The dairy boom is a mixed blessing, on the one hand adding a welcome boost to the economy. And let’s not be ungrateful. After all, what exports have I created this year? But it also takes us back to a colonial economy—a bunch of farmers serving cheap food for faster developing economies than ours. While the Brazilians develop a hi-tech economy including a space programme, we’re farming cows.

Morgan should know. “I think it is an interesting model for New Zealand,” he says. “We need to provide our best talent with the greatest opportunities. If those exist elsewhere in the world then they should go there, but keep Kiwi ownership where we can.”

But is this a malignant form of brain drain that could be damaging to New Zealand Inc?

Not so, according to Wallace, Moore and Morgan. Far from competing with New Zealand farming interests, they see this as just another extension of them. 

"The whole concept has been about embracing the world. It’s about feeding more milk into that network, just from a different geography. The value of Fonterra is not that milk is produced in New Zealand; it is that milk is produced in a lot of places and then traded around the world. New Zealand dairy farmers have a massive investment in a global business, not just a few dairy farms in New Zealand. We have done this since the start; it’s just that sometimes in the semantics and discussion that goes on we get a little bit protective or focused on the land holding.”

New Zealand has an addiction to a whitish-yellowish powder. Milk powder, that is.

At $10.4 billion a year, dairy is about 26 percent of our total exports (see NZIER exports report). That’s up from 17 percent in 2003. And all told, it’s almost as much as all the meat, wool, wood and wine exports combined. It certainly dwarfs our hi-tech manufacturing exports.

New Zealand’s becoming a one trick, um, pony. In some towns, dairy is the only industry that’s writing the cheques. That and the welfare. 

How we deal with the boom in dairy (see Futures Research report) in the next few years will define us. There are many questions to answer. I can count at least three:

    1. How long will the boom in milk prices last? And what will happen when, as all booms must do, it ends?

    2. At what cost is this boom happening: environmentally and strategically? Can we afford to have so much resource tied up in one industry?

    3. Where’s the intellectual property in all this?

On this last one, you could argue that cheese and butter have at least added value through processing and branding. And yes, there’s a huge amount of IP in Fonterra’s distribution and marketing network.

But flogging Kiwi-grown commodities like these won’t buy us computers and cars. There needs to be more value in the chain.

In the next few weeks we’ll be inviting you and the occasional expert to suggest answers to these questions.
Is dairy becoming a powder addiction? What do you think?


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Comments

robin

NZ is addicted to exporting the lowest-value raw product possible. The investment/creative mentality just isn't there. Within 20 years NZ will have moved to the end of the value-add spectrum, with an increasing proportion of NZ raw-production owned by foreigners who will take a risk on innovation and value-add, and reap the rewards.

Captain Whatever

Nice on robin.

Wish I'd thought of it? Nope.

Wat Chin

Vincent should know better. NZ Farms Uruguay has done it all before-just acrioss the border… no new initative involved, It is a question of can it be sustained or can it be managed properly to be sustained long term.

Hugo

As Wat said, there's nothing new here. I am a little dubious that we may have another kiwifruit-in-the-80s type on the way.

I always stand up for Sam Morgan when people claim he didn't do anything new - i.e. just copying eBay's idea and hasn't done much since. However I would question my defense when I read stuff like this? This isn't smart and if reading through the spin, I believe will hinder one of the few things bringing reasonable money into NZ, not help it.

Isn't Sam Morgan some kind of hi-tech guru? Well then why isn't he putting his capital and that genius brain of his towards creating things that are clever and will help NZ (I know he's tried a few things), and diversify our economy with higher paid jobs. Brazilian barbeques are fun though, I can understand the attraction

cocosmooth

I have been rabbiting on about this for years. Imagine India, the world's biggest dairy consing market. Hardly any serious players are going to invest in NZ become is is too small a Market - we have to invest in ourselves and export our knowhow overseas. Poverty of mond abd lack of perspective is holding us back. We have considerable competitive advantages in dairy, meat, forestry, fisheries, wool, rugby, wine, hydropower, geothermal energy, boat design and manufacture, socio-environmental sustainability, international diplomacy … the list goes on! Go Team NZ!

cocosmooth

Ps. Apologies for the weird typos and capitalisations; I'm not loving iPhone's autocorrect on correct words!
Pps. I forgot to add 'acquiring/acquisitions' alongside the 'exporting' above. Basically multiple big, medium and small 'Fonterra's' (including SOEs) on steroids worldwide!

jh

So Brazil has good dairy land and “if NZ wants computers..”
Might not it be wise to get real about our place in the world and concentrate on the urban environment and quality of life?

CW

Too many negative comments when we should be looking for ways to generate more income for our country. Sounds like Sam is doing what he does best, taking a proven idea and making it work to his advantage. Basically what most sucessful companies do…
As a country we spend too much time selling ourselves short and then moaning about it. Selling dairy powder, logs, wool and slabs of meat should be a crime. We are better than this…
More people should get off their butts and help the country by bringing in wealth from offshore.

MG

'Cellphone science' was the term that AgResearch used to describe their commercialisation of clover & pastoral science breakthroughs into South America in the early '90's. Sure it's not new, but great to now see Kiwi's at the helm of such an impressive initiative.

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