Forget fake news – anybody for fake milk?

Technology isn’t just about electronics: Creative HQ chief executive Stefan Korn says New Zealand’s food industry is at risk of severe disruption from technological developments.

That will mean about 66% of the country’s exports, which are commodity food products such as dairy products and meat, are at risk.

Products such as artificial milk will be much cheaper to produce and are likely to displace milk that comes from cows.

Mr Korn says companies, such as Fonterra, simply won't be able to compete against such commodity products.

“Synthetic milk doesn’t require any land, it doesn’t require cows, it requires no feed and it can be produced wherever it's wanted – it doesn’t need to be distributed, so that’s a disruptive replacement,” he says.

The cost difference will be dramatic: a carton of cow’s milk retailing for about $3 can be replaced with artificial milk costing about 3c.

“Of those products being exporting from New Zealand, 66% of have replacement products that have a different footprint in production,” Mr Korn says.

“As a result, we believe there’s a significant risk that the country's ability to earn export dollars from those products will be diminished.”

For those sceptical that artificial milk will ever take off, he says it comes down to economics.

“Do you even know whether it’s artificial or not? Because they’re chemically identical. Most of the product doesn’t end up being consumed directly, it’s in processed food,” he says.

“Anything from Mars bars to pies – people have no idea what milk actually ends up going into those products. A lot of those producers are entirely cost and price driven, especially if they will not be able to tell the difference in taste or anything else.”

Such manufacturers will automatically go to the lowest cost producers.

The future of real food is premium
Mr Korn says there is still a future for “real” food but only at the premium end of the market which is not the part of the market that most of New Zealand’s food production is aimed at.

“It’s entirely economically driven. The reality is, a lot of people, even in New Zealand, simply can’t afford organically grown meat and other products,” he says.

The bulk of consumers will buy the cheapest products available because they have no other choice.

“There will always be consumers who prefer the organic and ethically farmed stuff, but it’s basically only the tip of the iceberg, it’s only a few percent of the whole consumption curve.”

These products are at the premium end of the price spectrum and New Zealand’s biggest problem is that it isn’t competing at that premium end in most cases.

“Looking at how Fonterra operates, it’s basically a commodity producer.” That means the dairy industry is effectively held hostage to the GlobalDairyTrade auctions and lives or dies on the prices it can extract for its commodity products.

The challenge for New Zealand is that by aiming for the middle part of the market and the middle part of the price spectrum, it’s in the most difficult place to be.

“There’s always someone, especially in commodities, who can ultimately produce it at a cheaper cost,” Mr Korn says.

“Strategically, options are either go upstream, either go premium and then transform farms into organic units and make it ethical, or become the lowest cost producer,” he says.

“Of course, with cows’ milk, once synthetic or artificial milk is fully established, it can’t compete against that milk – it’s impossible to produce it at a cheaper cost from cows than the production artificial milk.”

Mr Korn has conducted seminars at Fonterra for the past year on how to encourage innovation and cope with change.