Market/Consumer Challenges
Table 1 - Threats to butter exports from the market and/or consumers
Taxation policy and quotas changed or imposed
This could be a future challenge or threat to Fonterra. There could be sanctions placed on New Zealand exports from other countries which could impact on Fonterra’s profit. An example of this is the ruling from the European Court of Justice on the 11th July 2006, which reduced Fonterra’s tariff quota to 55 percent. Before 2006, NZ butter exports were charged a lower tariff (or tax) of the exports it sends the United Kingdom. This was favourable for Fonterra because ‘NZ produce attracts a lower tariff’ (Aitkinson, 2006), meaning that buyers in UK were more likely to buy NZ butter over other competing butter. However, from 2007, Fonterra’s tariff was reduced to 55% of the import quota, which was capped at 77,402 tonnes of butter (Aitkinson, 2006).
It is important for New Zealand that in-quota tariffs are eliminated or substantially reduced. Otherwise the new tariff quota volumes that might be imposed could be unattractive to traders (Ministry of Foreign affairs and Trade, 2011).
China, Russia and developing countries develop own dairy products
“China has a clear goal to build its dairy industry to meet increasing demand from an expanding middle class” says Ben Chapman-Smith in his article “Boom in live cattle exports to China.” In 2012, China bought 38,000 of New Zealand’s dairy livestock. One of the major buyers in China is actually Fonterra. This has the extreme potential to backfire on the butter exports. This is a threat because China, in all probability, will expand its dairy industry and in the long term, no longer need to import Fonterra’s dairy products. Similarly, if Africa and India follow this trend and develop their own dairy industry, then this adverse impact for the New Zealand butter exports could increase.
By Zoe Foreman
