Fonterra has taken continuing criticism of its GlobalDairyTrade (GDT) online auction system on the chin and is moving on.

In February, NBR brought forward criticisms of the system, which have been echoed more recently in other publications.

Nigel Kuzemko, Fonterra’s director of portfolio optimisation, rubbished claims that GDT contributed to increasing farm subsidies in both the EU and US because of its influence of the global dairy milk power price.

He pointed out that those against the concept are competitors, and that the EU has far more economic drivers that just reacting to what Fonterra might do. However, Fonterra is responsible for 40% of the global export dairy trade.

The European Union’s agriculture commissioner, Marianne Fischer Boel, has been under fire this year because of a hard line stance to stick to plans to increase milk production quotas.

Under the EU’s Common Agricultural Polity (CAP), milk quotas will continue to rise until 2013 before being completely abolished by 2015. This form of regulation is designed to maintain higher milk prices by controlling production.

However, late last week, the EU’s two biggest dairy producers, France and Germany formed a working group to frame reform of the CAP.

French farm minister Bruno Le Maire said it is “absolutely necessary to regulate production.”

He said more regulation would be France’s guiding line in negotiations on farm reform.

Mr Kuzemko said the European Commission had been resolute on the issue of quotas and had a commitment to end them, regardless of the noise member states might make.

He said that during his own visit to Europe six weeks ago, he met with a number of co-ops that were gearing themselves to operate in a world without quotas. In many cases, Mr Kuzemko said rationalisation in the European dairy industry was going to be part of the process and is already occurring.

“Let’s be clear, it’s very tough for farmers around the world. For example, in France there are whole villages that aren’t there anymore because dairy can’t sustain them and governments are running out of capability to subsidise them,” he said.

For Fonterra, Mr Kuzemko said it is impossible to predict what the dairy landscape will look like when the quota system in Europe is abolished and, along with it, other protectionist strategies, among them subsidies.

What Europe does is very important. The US earlier this year increased farm subsidies in direct response to moves in Europe.

Mr Kuzemko is pragmatic about the move.

“In Washington, the biggest concern is ensuring there is a level playing field for their farmers.”

This year, the US Department of Agriculture (USDA) is expected to spend $US8.8 billion on farm subsidies.

Moving ahead, Mr Kuzemko looked forward to when derivative contracts would be adopted allowing customers, and possibly even farmer suppliers, to flatten out the prices with advance buying – paying a fixed contract price over a period of years. He said it all depends on how mature financial derivatives get.

“The dairy industry worldwide is going to continue to change. There is some resistance to that change,” he said.

The Franco-German working group on the CAP is an example of that.

“Our long term view is that population growth is increasing, wealth is increasing which is all very good for the dairy industry.”