we make a trip to the farm!

Hi, Chris Chappell here in New Zealand.

You might be surprised to learn that

the rolling hills of green behind me

are actually rolling hills of milk.

Dairy is big business here.

That's one reason why New Zealand

is buttering up to China.

Dairy is New Zealand's biggest export

and makes up about 6 billion dollars

of the country's GDP.

And since China is New Zealand's biggest trading partner,

a lot of that dairy ends up in China.

So, there's a big demand in Chinese markets

for New Zealand milk?

There is.

Yeah.

I think in the last financial year

that the interim results came out,

about a quarter of New Zealand's milk

goes into China.

Wow!

New Zealand Dairy farmer Chris Falconer

gave us a tour of his farm!

I should not have worn a suit.

Someday, you'll be a tasty steak.

Chinese consumers want to buy New Zealand products

because they trust the provenance of the raw products.

The milk that we produce,

they know that it's produced like this.

They know that the processing standards are very high.

The manufacturing standards are very high...

I think that they're willing to pay

a little bit more than they would

for a product from another country

just because of the quality standards that we have.

And Chris gave me a good idea

of just what goes into a glass of New Zealand dairy.

So, how often do you have to rotate the fields?

Basically, you understand how fast the grass is growing.

That dictates the speed of the rotation.

So, you want the grass to go from A to B

in the time it takes to get around the paddocks.

So in Spring that can be 20 days,

and in Winter that can be 80 days.

This is, by and large,

a pretty sustainable deal you've got here?

Well, yeah.

We don't ...

we operate on the basis that the land can sustain the animals...

So, all these cows stay grass-fed their whole lives?

Oh, yeah!

Yup.

They're never inside.

The only time they get a roof over their heads

is when they're a baby calf

and they get put in the shed to be reared.

When they go in to get milked,

there's a roof over the cowshed...

Do you think that affects the quality of the dairy?

It absolutely does.

Yeah.

So, there's been a lot of work done

on the contents of pasture-fed milk.

Again, there's all these people taking omega three pills.

Grass-fed beef and grass-fed milk is high in omega threes,

high in complex linoleic acids, high in antioxidants.

So, it contains a lot of those things that people

are supplementing themselves with... so, they-

I think I need to get a jar of raw milk from you before I leave.

I think we can organize that.

I think we can organize that.

Yeah.

It's that kind of quality that appeals to Chinese consumers.

In 2008, China was rocked by a scandal involving Sanlu—

a Chinese dairy company that added a toxic chemical

called melamine to its milk powder.

Melamine made the milk's protein content

appear higher in tests.

But it also made more than 300,000 sick

and killed at least 6 babies.

So a lot of Chinese consumers started looking overseas

for dairy they could trust.

It's cows like these that provide China

with the lactose they tolerate.

How long has this one been around?

Well, I think she's about five or six years old.

That cow.

So in her life, how much milk will this cow produce?

She'll produce about 350 kilos of milk solids a year,

which is the equivalent of about 4000 liters of milk per year.

Wow.

So 4000 liters of milk is at

the low end of the production scale

in most parts of the world,

but it's high in fat and protein so it's got [inaudible] choice.

So a little less production, but higher quality.

Higher quality, less production,

and most importantly, less cost.

Less cost.

So how much will that be worth?

That cow?

Well, the cow and the liquid gold that comes ...

Well, she produces as I say,

about 350 kilos of milk solids a year

and they're worth six dollars a kilo,

so you're about 2000 dollars worth of milk.

And she's probably worth about 15 or 16 hundred dollars.

So she produces more than her value in milk every year.

And also manure too, right?

Yeah, that's just part of the recycling system that we run here.

So, yeah.

The sun provides energy here

and she converts the energy in her rumen into milk.

About how many cows do you have on the farm?

Roughly 500.

It varies from season to season, but roughly 500.

Chris Falconer works with

New Zealand's biggest dairy co-op, Fonterra.

Fonterra is the world's largest dairy exporter.

It gets its milk products from more than

10,000 New Zealand dairy farmers,

who also own shares in the company.

In 2015, Fonterra invested in

a Chinese company called BeingMate.

This is their logo,

so you know I'm not making that name up.

Fonterra paid nearly half a billion dollars

for an 18 percent stake.

But BeingMate was run...badly.

Beingmate's share price has dropped dramatically

since July 2017.

And that means Fonterra has lost big.

So, how do you feel about Fonterra's investment

with the Chinese company Beingmate?

Well not tremendously happy.

424 million that was written off

in the last set of results is there for all to see.

It's not something you can hide from.

Certainly, the management aren't hiding from it.

They're disappointed.

They thought they had done a very good job on diligence

and they'd gone through the process

as well as they could, but ...

You know, that's a difficult place to operate.

And you have to remember also,

that as big as stake as it sounds,

it was only 18 percent of the company.

You're a minor shareholder.

So, the company will continue to do

what the company will continue to do.

We can only influence so much.

Having said that,

I think it would be fair to say,

there was a degree of naivete thinking that

everything that was disclosed to you

was all that there was.

It's never been that easy a place

to do business for New Zealanders

and I just think maybe they should have taken

a slightly more cautionary approach to the investment.

What do you think the long term effect

will be on New Zealand dairy farmers?

It's hard to know.

They're working with the management from Beingmate

to improve the business returns

and to put it on a stable footing

so it does what it's meant to do for New Zealand farmers,

which is to provide an avenue for markets and branding.

So, I think, FrieslandCampina, for example,

the Dutch cooperative, have stake in our company in China,

and they just wrote the whole lot off.

They're gone.

They just walked away from it.

Do you think that's an option for Fonterra?

Well, I think that you shouldn't hold onto a mistake

just because it took you a long time to make it.

So, I think time will tell.

I think, at the moment we're being told

is that they're looking to help the company improve returns.

So I guess that's where they're gonna go,

but I don't think there'll be much tolerance

from shareholders for any further losses.

I think the next director elections

could be very interesting for some people.

Yeah.

Especially since the CEO of Fonterra

is the highest paid CEO in New Zealand, right?

That is true.

That is true.

And there's a bit of talk about that as well.

I can imagine.

The BeingMate loss was not Fonterra's

first rocky investment in China.

Before the melamine scandal broke in 2008,

Fonterra owned a 43 percent stake in Sanlu.

Oops.

But since China is such a huge market for New Zealand milk,

Fonterra is still in it for the long haul.

And here in New Zealand,

the milk will still flow.

This is where the cows get milked.

So, 40 cows each side.

They come in.

They line up with their rump here, on an angle.

And we come along and we put the cups on them

and by the time this row is finished

the other side is rolled in

and we just basically switch them over to the other side.

Repeat until all the cows are gone.

We're milking about eight rows at the moment.

Okay.

How do the cows like it?

They're very happy.

And do you ever take a little bit off the top for yourself or your kids?

I've been known to regularly, yes.

I usually have a pint every morning.

A pint.

Do you want to try some milk?

I'd love it, cheers!

Let's get some milk.

So that should be enough.

Alright.

Oh, that looks thick.

Try it.

That's the best milk I've ever had in my life.

Really?

It's fresh.

Oh, it's fresh alright.

Yeah.

Yep.

You can almost taste the grass.

So now we know how milk goes from grass to cow to Chris!

Which is why I'm drinking as much New Zealand milk now as I can.

It's going to be a deeply unpleasant flight back to New York.

Chug chug chug chug!