The Peter Zeihan Podcast Series - What the New Zealand Dairy Industry Got Right (IT'S CHEESE!) || Peter Zeihan

Episode Date: April 26, 2023

I think I've found my favorite trail snack - Kikorangi Triple Cream Blue from Kapiti - I swear it will turn a 15-mile trek into a brisk walk. It just goes to show that as the world's top dairy exporter, New Zealand has its s*** figured out... Full Newsletter: https://mailchi.mp/zeihan/the-new-zealand-dairy-industry

Hey everybody, Peter Zion here coming to you from the shores of brilliant Lake Bukaki and Central Otago in New Zealand. And today, we're going to talk about New Zealand's number one agricultural export, and that is dairy. Now, there are two main ways that countries approach a dairy sector. The first is what the French have done. So you've got these small towns with these tiny creamries, oftentimes attached just one individual little. Hamlet. And within that, and within that, you get very low throughput and not what we would call world-class safety standards. So if you are in France and you have a cheese in a local community, you don't get sick, you know, good for you. But the real issue is that you can't get that

cheese in the next town over, the next town over, much less in Paris, much less in the wider world. The very small production runs. They focus on value-added quality and specific. On the other side, you have the American style, where there's larger and larger dairy farms, larger and larger dairies, larger and larger operations, and ultimately the milk is harvested and is sent to a processing facility where it's all done at scale. Now, there are pros and cons for each system. Obviously, food safety, the smaller the operation, the bigger the problem is. And obviously, the cheese that you got one year, you might not be able to get the next year.

With scale, you have more reliability, you have a more economic system, you don't have to worry about subsidies like the French are always worrying about. But when you've saturated your local market, you kind of hit wall. So in the United States, once you've met the demand for the American liquid dairy milk plus local cheese, you're kind of screwed because when you're producing that scale, yes, it's high quality, yes, it's reliable. But that doesn't necessarily mean that everyone in the world wants American cheese. And so you just kind of get this glutted market. The only thing you can do then with all the extra dairy, the only thing you can do with all the extra dairy then

is condense it into powder, dehydrated, and then export the dairy powder to systems that are willing to pay for it. And India has probably been the single largest market for that over the past decade. Now, in New Zealand, they've kind of had on the magic system for blending the best of both worlds. New Zealand has very mild summers. I'm here in the first week of April. It's about 60 degrees.

This is kind of their first real month of fall. And in the summer, it just rarely gets above 80. But then in the winter, it rarely gets below freezing. So the cows don't need shelter in either shoulder season. In addition, it rains here often. And even in places where it doesn't, there's plenty of water available for irrigation. So most of the dairy cows in New Zealand basically just graze all day. They don't need silage.

So their production costs are the lowest in the world. And because the physical footprint of the cows is so dense because they can just really just lie around and munch. You don't have to move them around like you might have to in the United States. You don't have to bring in green from elsewhere. Or in France, you don't have to worry about those sort of weather extremes. So they have the lowest cost production for all dairy goods on the planet and only 5 million people. So their ability to export is massive, so they can achieve American-style scale,

but they don't follow American product types. They don't export a lot of dairy powder. They turn it into value-added product. And when they ship that to the international market, because the production costs are so low, and because their domestic consumption is so low, they are able to compete in any market anywhere in almost any product category. So the New Zealanders will out-compete French butter in French colonies in the French Caribbean on the wrong side of the planet. They're selling butter products now in Mexico City.

The United States has a NAFTA treaty with the Mexicans for dairy access. The Kiwis aren't a party to that, but they can compete on price and quality outside of tariff bounds. But most importantly, because there's so much dairy, so many places in New Zealand, they followed a French style for specialization. And each community has its own cheese, but since they have American production styles, they can produce them all at scale. And my personal favorite is this thing called triple cream Capiti Kiko Rangi. It is the most wonderful thing I have ever had in my mouth. It combines basically the texture of brie with the heat and the taste of blue cheese. It is absolutely spectacular.

It is not available in the United States, which pisses me off to no end. So I'm going to include the information for the folks at Kapiti. here so that everyone can annoy them, tell them Peter's eye and sent you. Because we have to get this in North America. We have to. I've been going through a wheel of this a day for the last two and a half a weeks. I'm going to see how much I can smuggle on my suitcase back through customs. Okay.

So if you're in the United States, if you're in the world of dairy, the lesson here is to partner with a local creamery and get creative with your products because you can take it anywhere you want. You've got the dairy milk down. You've got the cost structure down, but you have to get creative of what you produce. But let's say you're lazy and you just don't want to do that. There is another solution because this is not the only dairy product on the planet. The Icelanders have a product called Skier, S-K-Y-R.

Izzy is their major producer. Now, this is Sker produced in New Zealand. The Kiwis did not produce this originally. They have produced it on license. So if you're in the United States and you're not creative enough to come with your own products, you can license someone else's and produce it at scale with American product costs. Skiar is basically a yogurt with about five times the protein content of American yogurt and

less than one third the calories. And as you can see, it comes in order. So, New Zealand, unique among dairy powers, produces its scale, sells internationally without access to a trading system, and very specific product. that no one else can match. In addition, they're smart enough to use their excess dairy to make somebody else's product as well. So American dairy farmers, chop, chop, get to it because I can't get this stuff at home. And we should be able to. All right, that's it for me. See you next time.