Last year I found myself sitting on a plane beside a Fonterra executive who was bound for Chicago, where the dairy giant’s US operation is based.
I asked him what he considered to be the biggest issues the company faced.
He immediately mentioned “trace-ability” and giving Fonterra’s customers confidence in the safety of its products, something that is rightly front of mind following the company’s costly botulism scare of 2013.
He then explained at length the logistical headaches of shifting large amounts of milk powder to offshore markets like China in a cost-effective manner, one of the most practical problems Fonterra faces every day.
Then I said: “what about the threat of synthetic milk?” watching his face closely to see how he’d react. He raised his eyebrows, looked out the window over the Pacific for a couple of seconds and then told me that it wasn’t considered a major issue. I don’t think he was bluffing, but genuinely suggesting it isn’t considered a big deal by Fonterra’s senior management.
That view was pretty much confirmed by Fonterra in the National Business Review today:
The NBR story ran Fonterra’s response to Chief Science Advisor Professor Sir Peter Gluckman’s comments yesterday at the NZBIO conference in Wellington that synthetic food is one of the “big existential risks to New Zealand” and that the “risk is real”.
A Fonterra spokeswoman responded:
This could well be Fonterra’s Kodak moment – mirroring the US camera company’s failure to recognise and respond to the disruptive threat posed by digital photography.
As NBR points out, about 27 per cent of New Zealand’s $50.84 billion in annual exports comes from dairy products, which on a national level also account for 10 per cent of the household food budget.
There’s no suggestion that business is suddenly going to disappear, but rapid progress in developing synthetic milk products from plant-based material and bioengineered yeasts, plus a growing desire among consumers for more sustainable products, means that “growing market” for dairy may peak sooner than Fonterra realises.
Couple all of that with growing concern at home over the impact of dairying on our waterways and the conditions are ripe for serious disruption.
It is always difficult for incumbent players to accept the threat of disruption. Those companies that fail to adapt to change wither and die and so they should – that’s a healthy by-product of innovation. But Fonterra is our biggest company and integral to the economic well being of the country. We need them to embrace this transition and plan for it properly.
I want to get the sense that its executives are seriously considering the threats posed by synthetic foods. Heck, I want them to get into synthetic foods so they are on the cutting edge when these products go mainstream.
How far away is synthetic food from becoming mass market? Consider the following three data points:
1: This University of West England research paper that compares the energy use between conventional and “yeast-derived” synthetic dairy products.
“In comparison to conventionally produced milk, YDM involves approximately 24-84% lower energy use, 98% lower water use, 77-91% lower land use, and 35-65% lower GHG emissions.”
2: A number of start-ups, most prominently Perfect Day which plans to launch by the end of this year, have pioneered ways of using genetically-modified yeast to produce milk without input from cows. Where are our start-ups in this space?
3: The global market for milk alternatives reached US$5.8 billion in 2014 and is expected to be $10.9 billion by 2019, according to analyst group BCC Research. Most of that market (US$4.4 billion in 2014) was made up of soy products. A lot of people don’t like the taste of soy. But if the new wave of start-ups can mass produce alternative milk products that, as they currently claim, taste as good as milk products from cows, and are cheaper, this market could grow much faster.
I do hope, Sir Peter is right when he said at NZBIO that our primary industry companies are indeed working behind the scenes on this:
“While it may not be in the public domain, there are a lot of conversations going on at the highest levels in the industry. I don’t think I am giving away any secrets to say that companies as large as Fonterra are talking about it – they have to be.”