Maori-controlled, with a Vietnamese connection, one of the country's newest dairy companies does things a little bit differently from the big boys, discovers Jamie Gray.
Given the attention that focuses on Fonterra's every move, it can seem that the huge co-op and the dairy industry are one and the same thing. But despite its dominance, a band of smaller players is surviving - and sometimes thriving - in the giant's shadow.
One of the newest is a tiny, Maori-controlled dairy company which kicked off late in 2011, quickly turned a profit and already has a waiting list of potential suppliers after just two seasons.
The company, Miraka, runs a wholemilk factory at Mokai, 30km northwest of Taupo, that is already "full" - meaning it can't take on any more suppliers. The fact that there is a waiting list is hardly surprising, given that it pays 10c per kg over the going rate at Fonterra.
And, unlike the co-operative model, Miraka does not require its suppliers to hold shares.
With the advent of Trading Among Farmers (TAF), which has seen the Fonterra share price leap from $4.52 before TAF to as high as $7.42 this week, the temptation for Fonterra farmers to sell their shares is strong, as is the allure of not having to buy shares in order to supply the company.
Federated Farmers Waikato Dairy Section chairman Chris Lewis, who farms at Pukeatua, just outside Miraka's catchment, says the newcomer has been making a "quiet splash" in the region.
Miraka is New Zealand's only Maori majority-owned and controlled dairy company. The company name is a succinct description of what the business is all about: it's Maori for "milk".
The organisations behind the venture include Wairarapa Moana, Tuaropaki Trust, Waipapa 9 Trust, Hauhangaroa Partnership, Tauhara Moana Trust and Huiarau Farms. The shareholders of the various trusts and incorporations involved have links to Ngati Kahungunu, Ngati Tuwharetoa and Ngati Raukawa iwi.
Steam and power for the milk drying process come from another Maori-controlled enterprise - one of the Tuaropaki Power Co's geothermal power plants, across the road from the $90 million Mokai factory. Tuaropaki Power is 75 per cent owned by the Tuaropaki Trust.
That arrangement proved its worth during the Maui gas pipeline leak in October 2011, which disrupted gas supply to much of the North Island. Miraka was able to carry on processing during the outage while some factories relying on gas had to dump milk.
In a year, the plant can process 210 million litres of milk from 55,000 cows. It can turn out eight tonnes of whole milk powder per hour.
But Miraka is a mere minnow in a sea dominated by Fonterra, which owes its existence to the Dairy Industry Restructuring Act.
The act permitted the 2001 merger of Kiwi Co-operative Dairies, the New Zealand Co-operative Dairy Co and the Dairy Board, thereby allowing Fonterra to create a near monopoly. Today Fonterra takes in about 90 per cent of the country's milk supply.
Chairman Kingi Smiler and chief executive Richard Wyeth say that in some ways Miraka is a reminder of days gone by, when hundreds of small dairy companies dotted the countryside.
Wyeth says local farmers enjoy the personal touch that a company like Miraka can offer. Suppliers like a chat when they meet company executives and staff at local sports events.
Smiler, a chartered accountant, spent eight years in Toronto working in the business planning and corporate restructuring fields with Ernst & Young, and was a partner from 1990 to 1997. He holds several other directorships and is on the Wellington Rugby Football Union board.
The keen ironman, who is of Ngati Kahungunu descent, is also chairman of Wairarapa Moana Incorporation, which, with Tuaropaki, was a key driver of Miraka.
The incorporation's origins date back to the 1880s, when Wairarapa iwi lost ownership of their lifeblood - the southern Wairarapa lakes and their lucrative eel fishery.
Despite an agreement with the Crown, Wairarapa Maori did not receive the promised land near the lakes as compensation for their loss. Instead, they were allocated land near Mangakino, at the northwestern tip of Lake Taupo.
Today there is good-natured banter between Smiler and Wyeth - who is from fifth generation Wairarapa farming stock - about how the tides have turned. Smiler ticks off Wyeth and his forefathers for taking away his ancestors' livelihood. Wyeth just looks sheepish.
It's been a long time coming, but today Wairarapa Moana's land around Mangakino is being put to productive use.
There is about 6000ha of forestry and 5000ha for a 10,000-cow herd. The farm has installed new irrigation, just in time to counter the effects of the current drought.
The Miraka project, eight years in the planning, was the result of Maori trusts with significant land assets and farming operations combining forces to get a better return on capital.
The idea of setting up shop outside Fonterra had its genesis back in 2005, when Wairarapa Moana was doing some work with AgResearch on how it could get more value from its milk.
"We entered a number of research contracts with AgResearch and, as part of that process, we worked on how we might commercialise anything that became successful," Smiler says.
By having more direct contact with customers over the long term, he says, a structure like Miraka's presented a better value opportunity. "It is fundamentally driven by the vision and strategy of participating in the value chain in a direct sense and having more control over a niche opportunity.
"It's unique in a cultural sense but not in a business sense," Smiler says. "We are probably the only one to be profitable in its first year of operation... that's what makes us different."
Miraka's connections reach well beyond New Zealand. The company is 19 per cent owned by Vinamilk - Vietnam's biggest dairy company - which chose Miraka as its first ever foreign investment.
In its formative stages, Miraka's backers talked to Vinamilk about becoming a cornerstone customer. "We chose Vinamilk as opposed to some of the major Chinese customers because we thought it would be a better fit for a niche opportunity," Smiler says.
"[Vinamilk] were keen to be involved and they agreed it would be a good idea to become an investor and to also buy some product."
Vietnam has similar issues to China, with a rapidly emerging middle class seeking higher quality nutrition for themselves and their children.
Global Dairy Network (GDN), which has a small stake in Miraka, markets its milk powder to Asia and the Middle East.
The principal partners in GDN are John Shaskey and Colin Jones, ex-Fonterra people with extensive experience in sales and marketing. GDN works with all the New Zealand-based manufacturers of dairy ingredients other than Fonterra.
Miraka's shareholder-suppliers contribute a significant amount of the raw milk the factory needs. The rest comes from other Maori trusts and private farmers attracted by the margin above the Fonterra price and the fact that there is no requirement to take up shares.
Suppliers and business partners are left in no doubt as to the company's cultural identity and good use is made of Mokai marae to introduce new people to the enterprise. Smiler says Miraka is strong on Maori values and big on environmental sustainability, but the key difference between it and other dairy companies is the attitude of its supplier-shareholders to the land.
Historically, farming in New Zealand has centred on improving the capital value of the farm with an eye on an eventual sale, but Smiler says that's where Miraka departs from convention.
The fact that its shareholder-suppliers will not sell their land means they are insulated from the slings and arrows of the farm real estate market which, like the housing market, sometimes gets overheated.
Farm property prices rose sharply from 2000 to 2008, before going into a steep reverse during the global financial crisis, but Smiler sees the ups and downs of the property market as a sideshow.
"For us it's important that our farms are profitable on an operating basis," he says.
For the past 20 to 30 years, he argues, the dairy industry has placed too much emphasis on capital gains, or "trading off the operating opportunities because of the land value".
"That is not a factor in our structure or our investment, but it is with everybody else.
"Hapu (sub-tribe) lands are to stay forever - that is the underpinning philosophy.
"So how the rest of the market rides its ups and downs is really not an issue for us," he says.
Farm prices have fallen from their 2008 highs, "but I think that culture and behaviour is still what fundamentally drives the industry and as soon as the brakes come off, they will be at it all over again".
Federated Farmers' Lewis says that despite Miraka's initial success, it is never going to be able to mix it with the big boys because of the way the market is structured.
"But I would say that in the next few years they will find their step, and their place in the market, and go forward."
Posted: Fri 12 Apr 2013