Till the Cows Came Home by Wellington journalist Clive Lind tells the story of how the New Zealand dairy industry changed in the 40 years to the formation of Fonterra in 2001.
In 1961, when Britain first sought to join the European Economic Community (now the EU), New Zealand's dairy industry and other exporters had to face the reality that their main customer base was about to disappear. It had to find new markets in countries, which placed all possible barriers in front of importers to protect their own inefficient, heavily subsidised industries or which had little history of dairy consumption.
One country that did encourage imports, albeit erratically, in the 1970s and 1980s was the Soviet Union, but that presented other challenges for New Zealand, mainly a heavily-skewed trade imbalance.
The Soviets expected some quid pro quo for relieving this country of its butter stocks in a world saturated with subsidised butter. The New Zealand Dairy Board - the country's sole exporter - decided one way to help would be to form a company which would trade in Soviet goods while selling as many dairy products as it could with the Soviet Union.
Part 1 begins in 1985, when some considerable entrepreurial skill was required:
Till the Cows Came Home
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John Parker had the management-focused title of deputy chief executive of the New Zealand Dairy Board, but he remained a natural entrepreneur.
Amiable and convivial he may have been at first sight, but he was not known for either patience or diplomacy.
When it came to business, he was all business. He had already left the Board once when he had grown tired of its early plodding nature.
And he well knew how to speak his mind, sometimes brutally, such as when he gave his views of the theorists of Treasury. “Treasury dislikes monopolies.
They talk about playing on a level field,” he once explained to a group of accountants in Taranaki. “This expression is a great indicator of their naivety and ignorance.
Most of them are so fresh out of school that they see business as a game instead of very serious warfare. “They don’t seem to understand there are no Queensbury rules in business.
We try to make sure we never do anything so dumb as get on a level playing field.
We want to play on the uphill end, with the wind behind us.
We’ve preferably suborned the referee, and have bigger, meaner and more players on the field than the opposition.
We don’t get the least attack of conscience about this, because all the playing fields we are on are offshore …” Parker found that the entrepreneurial spirit he enjoyed fitted in well with Murray Gough.
He was to come to the conclusion that Gough was every bit as good a chief executive as Bernie Knowles.
Both were men of big ideas, with good intellects and reasoning powers, and both also knew the importance of detail.
Both were prepared to take big risks. Gough was perhaps the more calculating.
Parker’s own ability to take calculated risks was about to be tested further.
He regarded the purchase and sale of 100,000 tonnes of US butter a few years earlier as the highlight of his career to date, but further forays into the Soviet Union were to provide even greater dramas.
The Dairy Board was doing increasing business with the Soviets, in butter, whole milk powder, butter oil and even a few shiploads of cheese. The Soviets also acted as agents of sorts for Cuba and arranged sales to that country.
Tonnages were large and it was increasingly good business, with prices well ahead of the levels the Board had been forced to accept in 1985. That year had been pivotal for the Union of Soviet Socialist Republics.
A new leader, Mikhail Gorbachev, with a peasant background but university education, came to power as general secretary of the Communist Party.
Gorbachev was not long at the helm before western governments realised he was far from the usual Russian bear of a leader spouting ideological dogma. Gorbachev had major reform on his mind as he sought to revive a moribund Soviet economy.
The following year he launched perestroika — reconstruction — a policy which he described as the development of democracy, socialist self-government, the encouragement of initiative and endeavour and other changes.
He added another Russian word to the vocabulary of the international audience watching — glasnost, or openness. That meant no immediate change for the Dairy Board.
Business still had to be conducted through Prodintorg, a vast, centralised entity which dealt with meat and dairy products, sugar, vegetable oils and other foodstuffs. Those who worked for such an organisation were the elite, a tiny percentage of the Soviet population with influence and power.
In time, however, it became clear there was growing pressure on Prodintorg from those even higher up the political tree that it should do more than simply import goods; it should also use its influence to help find export opportunities.
Jim Graham had been with Parker in Russia when the Soviets had attacked the imbalance of trade and made it clear New Zealand was expected to do something about it.
Parker’s initial answer had been: “What say we buy more tractors and Lada cars?” Graham would well remember the first Russian tractor that had arrived in New Zealand and ploughed over 1000 acres to prove its worth. It was not ideal. It required a ladder to get onto the seat.
Opening and shutting farm gates consisted of much running up and down that ladder.
Expanding imports of Russian goods would be far from easy. New Zealand was up against it, however. It needed the Russians to take its butter and other products.
There was little the Russians could offer New Zealand in the way of exports, but the message was clear — they expected New Zealand to do something to help right the trade imbalance.
The Dairy Board’s usual advantages in commodity business were consistent quality of product, reliable delivery, superior packaging and sound and ongoing technical advice. In the Soviet Union, such factors were irrelevant.
The Russians were concerned only about price.
The Board needed an edge without having to stoop too low on price. Parker began to see there might well be an opportunity to help the Soviets.
He envisaged a two-way trading company that would not only sell New Zealand products to Russia but also import goods from that country. It would require an entrepreneurial person to run such an operation — the trade would range far beyond the brief of the Board’s usual marketing companies.
Fortunately, a person with the necessary knowledge and connections was available. Bruce Gaffikin was a young New Zealander who had already traded extensively with the Soviets.
He spoke a smattering of Russian, knew the people, understood the opportunities, had initiative and wasn’t afraid to take risks.
Gaffikin’s first real insight into the Soviet Union had come when he was a student at Massey University and Joe Walding, the local MP, became Minister of Trade for the 1972 Labour government.
As a part-time job during his student years Gaffikin found himself running a cabaret owned by Walding.
The MP was a larger-than life character of comparatively little education, as broad as he was tall.
Apart from his night club, he ran an internationally impressive food company.
Prime Minister Norman Kirk had believed there were good markets for New Zealand in the Soviet Union and China and had set Walding loose on both.
In 1973 the Russian Legation in Wellington, it was mutually agreed, would be upgraded to embassy status while New Zealand would re-open its embassy in Moscow. Gaffikin had heard from numerous sources the stories behind Walding’s initial ground-breaking trip to explore the possibilities of expanding trade.
On the flight to Moscow from Tokyo, Walding had made two poor decisions. He had underestimated the potency of saki, and he had taken off his shoes.
By the time the plane landed, he was much the worse for wear … and unable to put on his shoes. Waiting to greet him at the bottom of the steps was the hugely important Soviet Minister of Trade, Nikolai Patolichev.
The minister was about the same size as Walding but older. He was a former tank driver and known as a hard-driving Communist minister. Walding emerged from the plane dishevelled and holding his shoes in his hands.
As he started to walk down the steps, a waiting band struck up the national anthem.
It was one of those moments when another misstep might produce an international incident of considerable moment.
Those watching waited with bated breath, wondering how the Soviet minister would react to a rotund, less than sober man from a distant little country coming down the stairs holding his shoes.
After an awkward silence of a second or two, Patolichev broke out in beaming smiles and embraced Walding in a bear hug.
Walding was very close to the Russians’ own persona in many ways and it was clear they liked him.