January 8, 2024

#13: The Work of Money in Assembling the Aotearoa New Zealand Dairy Industry

Fonterra has been a constitutive part of the demand regime that has created production incentives for dairy farming – both foreign-financed and domestic – in Aotearoa New Zealand. New Zealand-based scholars Russell Prince, Matt Henry, Michael Mouat and Carolyn Morris take the company’s pricing practices as a starting point to engage with the question of how we can deal with the largely undebated social and political character of money and its derivative forms – capital, credit/interest, dividends etc. in agri-investment contexts, introducing the concept of moneyness. By doing so, they build an important bridge to the earlier entry by Anitra Nelson on money.



‘Money’ appears to be being taken more seriously across the critical social sciences, including Agrifood studies. Our research contributes to this re-examination in Agri-food studies by analysing the Aotearoa New Zealand Dairy Industry using a concept we call moneyness, that is, money as practical work that stabilises particular sets of relations which we call moneyness [1]. This analysis opens up the question of what money is because it shows clearly that ‘money’ is not the same thing in all places at all times.
Traditional explanations hold that the Dairy Industry developed into Aotearoa New Zealand’s largest and most important exporter as measured by money through processes of market selection [2]. In these stories ‘Money’ is understood as a ‘measure of value’, ‘a means of exchange’, and a ‘store of wealth’. Collectively, these properties form the most popular, taken-for-granted definition of money. But naming some defining attributes of money is insufficient to fully appreciate how money works or the work that money has done. The Sun is hot and round, but simply naming some of its features tells us nothing about its relationship to Earth and the Cosmos.
Our research instead analysed money as practical work that stabilises particular sets of relations which we call moneyness. These relations did (and continue to do) important work in assembling the Aotearoa New Zealand Dairy Industry, but they have been obscured by a tacit acceptance of the taken-for-granted money definitions named above. A few of these relations can be seen where practices of money called ‘currency’, ‘credit’, and ‘capital’ have worked to shape and stabilise particular dairy trajectories. Challenging dominant framings of money exposes a taken-for-granted, teleological narrative of the Dairy Industry that emphasises the seeming inevitability of its emergence and success in a specific productivist and cooperative form, while simultaneously obscuring its close financial entanglement with the Aotearoa New Zealand state’s agricultural project [3]. We draw on historical analysis to show how moneyness interconnects currency, credit, and capital and why this invites a reconsideration of the emergence and subsequent trajectory of the Dairy Industry.

Advertisement for Fonterra. Source: Matt Henry 2023.

1. Currency

Currency describes money in perhaps its most day-to-day form, as circulating notes and coins, bank deposits, and settlement cash [4]. There are two reasons that ‘currency’ is informative. First, currency is founded on a relationship that has endured since a settler state was formally established in 1840. Second, currency is intrinsically related to tax and the work enabled by taxation.
The relation between tax and currency was formed through new Crown Colony’s third Parliamentary Act – The Customs Ordinance (1841). Tax, in this case customs duties, was payable on all imported merchandise. The ability to levy taxes and impose fines was (then as now) jealously guarded by the state. For the new Crown Colony taxes and fines were payable in British Sterling (£Stg) but competing currencies such as French ‘francs’, Spanish-American ‘pieces of 8’, and American ‘cents’ also circulated in the colony. Governor Sir George Grey proposed a simple solution to this confusion in 1847 by announcing that non-British coins would no longer be accepted as payment at government offices. Within six months all other currencies were driven from circulation. £Stg was established as the unit of account by first, imposing involuntary tax obligations, and then critically by naming £Stg measured money ‘things’ as redemptive of those tax obligations. From the 1840s onwards these ‘things’ were predominantly commercial bank IOU’s in the form of banknotes, that circulated as currency denominated in £. Money in the form of a common currency was founded on this coercive relationship that obligated payment to the state in a particular form. This relationship was what imbued moneyness onto particular Sterling denominated things, making them money in the form of currency.

2. Credit

Credit describes money that exists in the form of a loan. While the loan will be denominated and used in the form of currency, it is founded on an enforceable contractual relation. The expansion of the Dairy Industry in Aotearoa New Zealand is inter-woven with the expansion of credit, not simply because it became available to dairy farmers for them to finance improvements, but because dairy was needed to help make credit possible. Early on, the Crown Colony limited the amount of bank credit that commercial banks could create by requiring convertability. Beginning with The Union Bank of Australia Act (1844), the law required banks to convert into £Stg on demand. This meant anyone could take their bank IOU’s denominated in £NZ and demand £Stg denominated IOU’s such as British Gold Sovereigns in exchange. The promise to convert meant that some way of attracting £Stg into the financial system was needed to cover all possible demands for £Stg. The Dairy Industry became valuable to the financial system from around the 1890’s onward because cheese and butter sold on London markets for £Stg could enter the colony’s financial system to cover the legal promise to convert. Critically, this also meant that a growth in £Stg denominated export receipts simultaneously facilitated the extension of credit by increasing the amount of £Stg available to cover redemption demands.
Initially the settler state only periodically participated in providing financial system credit, such as when Governor Fitzroy sidestepped an injunction from Britain on issuing currency by instead issuing ‘debentures’ on behalf of the Colonial Government in 1844. More systematic participation began with a system of state advances from 1894, where state credit became an additional funding channel supporting an embryonic dairy industry. The state’s role as both a generator and distributor of credit was entrenched when the Reserve Bank of New Zealand (established in 1933) became the monopoly issuer of currency and reserves (now called ‘settlement cash’ as above). This ensured the state could always issue its own credit, albeit limited by the promise to convert into £Stg. This meant that a vast new line of state-credit became available to the Dairy Industry which supported the expansion of dairy exports, the accumulation of £Stg for the RBNZ, and in turn the generation of more credit. One way the state used its ability to issue credit was through guaranteeing prices to dairy exporters. As part of the guaranteed price scheme, the dairy industry, through the government producer marketing board (The Dairy Board), could access credit from the RBNZ at a concessionary 1% interest. This 1% interest credit line remained until the late 1980s with credit amounts expanding and loan availability filtering down to cooperative dairy companies and their dairy farmer shareholders. Add to this that cooperative dairy companies and farmers were exempt from a variety of taxes between 1900 to 1988. This tax-debt forgiveness effectively operated as a form of state credit which left the dairy industry with more investible capital than many other private sector actors.
The longstanding requirement to convert that constrained credit growth, disappeared in 1985 when NZ’s fixed exchange rate regime was abandoned and the $NZ (£NZ became $NZ in 1967) was floated. Financial system privatisation also occurred during the 1980s. Agricultural loans by the state in 1986 were 37% of a total $7.9b in farm-based lending, but only about 4% of that lending was in the dairy industry. Today, virtually the entire agricultural sector debt of $61b is held by private financial sector actors and the dairy industry is about 60% of that. This transference of credit provision to commercial financiers from the 1980s occurred alongside the ongoing restructuring of the cooperative dairy industry which absorbed the assets of the Dairy Board, merged the two largest cooperatives, and instituted Fonterra as a virtual statutory monopsony (or monopoly depending on your perspective) in 2001.
Ensuring the promise to repay could be enforced meant ensuring the credit system was stable (or at least perceived to be). This initially saw commercial banks, and then the central bank itself, required to keep enough Sterling, until such a time as the commercial banks were able to manage their own affairs. These moneyness relations benefitted the dairy industry as it received its own line of cheap credit because of the State’s need to keep the flow of Sterling coming.

3. Capital

Capital is a form of money that exists in the form of a valuation of an asset, such as shares in a company. Normally, this value is assigned in competitive market relations, but the creation of Fonterra undermined competition in Aotearoa New Zealand, because it would effectively be a monopoly. Dairy farming in Aotearoa New Zealand has historically been dominated by cooperatives, as farmers have shared the costs of processing but maintained control of their farms. Over time, these cooperatives merged until, in the late 1990s, a mega-merger between the largest cooperatives created Fonterra. Instituting Fonterra would require new legislation exempting it from problems concerning competition law.
When Fonterra was established, it was the buyer of over 90% of the milk produced in Aotearoa New Zealand. The lack of an effective internal market for milk meant that there was the problem of how to price the milk collected from the farmers. The solution was to create a ‘tether’ between the ‘milk price’ and a new ‘fair-value share price’. Previously, cooperative dairy manufacturers had raised new capital by issuing ‘nominal’ shares related to the volume of milk each shareholder supplied for processing. New share capital was invested in new manufacturing assets to process the increased milk supply. ‘Nominal’ share prices were periodically set by company board of directors depending on the cost of new assets.
The idea of the tether was that if Fonterra overpriced the milk, then it gave farmers incentive to increase production, which Fonterra would then have to build new processing assets for, or otherwise dump. If they overpriced the shares by under-pricing the milk (a reduced cost of production flowing through to increased share values derived from earnings), then farmers could go supply milk somewhere else, due to a provision of the legislation guaranteeing farmers ‘open entry and exit’ from the cooperative. Consequently, they might cash in their high value shares and supply another processor. The ‘tether’ represents these moneyness relations required to stabilise capital value.
Open entry and exit also left Fonterra with the problem of ‘redemption risk’ because a pool of capital had to be set aside rather than productively invested just in case shareholder suppliers wanted to sell their shares and exit en masse. Since 2001 multiple changes to the tether were tried to mitigate such risks to capital, including: pricing the milk by deducting the processing costs of a ‘notional efficient competitor’; a failed idea to float on the share market; changing how the shares were valued from ‘fair-value’ to ‘restricted-value’; and a scheme to sell the economic rights to shares so that investors accumulated the dividend portion and farmers got the milk-price portion of the payout, which shifted redemption risk from Fonterra’s balance sheet to investors but provided no new capital.
Recently, Fonterra shareholders have approved another change in capital structure, from supplier shareholders currently needing to own 1:1 share/KgMS, to 1:3 share/KgMS. This requires an amendment to the original enabling legislation that Cabinet has indicated it will support. What should be clear after the first couple of decades since Fonterra was established that persistent capital problems in the co-operative dairy industry have required ongoing financial innovation and continual assistance from the state as the moneyness relations that make-up (and made-up) the tether are re-worked.


Thinking with moneyness allows for the reconsideration of the dominant teleological Dairy Industry narrative that treats money as a taken-for-granted passive measure of value and a simple means of exchange. This reconsideration retraces how money has worked and the work money has done. Moneyness has worked by relating currency to tax and making £Stg the unit of account. £Stg as unit of account was related to both bank and state credit. In turn the Dairy Industry became creditable as a £Stg accumulation machine which made the expansion of credit within the financial system possible.
Moneyness as means of destabilising dominant narratives of the Dairy Industry might usefully be used to reassess other dominant narratives. The role that foreign exchange plays in funding ‘New Zealand Inc’ is inherited from thinking of money as a simple object in a fixed exchange rate regime. The need to balance the fiscal budget or otherwise borrow from financial markets is inherited from understanding money as an object that the state has to get through tax first and then spend. Thinking of changing practices of moneyness as locally arranged and historically adapted solutions to problems takes us beyond the invisible walls of taken-for-granted but simplistic definition of money, and suggests that currency, credit, and capital can be arranged otherwise.
[1] This definition of moneyness is developed and used in: 
Mouat M (2023) Assembling the Land of Milk and Honey: The Work of Money in New Zealand’s Dairy Industry. Unpublished PhD Thesis: Palmerston North, Massey University. 

Other authors using ideas of moneyness in different ways include: 
Ingham G (2004) The Nature of Money. Malden MA: Polity; 
Hayes A (2021) World monies or money-worlds: A new perspective on cryptocurrencies and their moneyness. Finance and Society 7(2): 130-139;  
Koddenbrock K (2019) Money and moneyness: thoughts on the nature and distributional power of the ‘backbone’ of capitalist political economy. Journal of Cultural Economy 12(2): 101-118.

[2] An analysis of different market dynamics across a range of sectors in contemporary Aotearoa New Zealand can be found in: Prince R, Henry M, Morris C, et al. (2021) Markets in their Place: Context, Culture, Finance. London & New York: Routledge.

[3] The dairy industry has been historically dominated by cooperatives which owned and controlled and run by farmers. The brutal logic of economies of scale saw the number of cooperatives reduced from over 500 in 1920 to two (Fonterra and Tatua) in 2023. Fonterra currently processes over 80% of milk produced in Aotearoa New Zealand. 

[4] Unseen by most people ‘settlement cash’ is a specific form of currency held by commerical banks in central bank deposits that is used to clear transactions between financial instititutions.

Further reading:
Prince R (2020) The geography of statistics: Social statistics from moral science to big data. Progress in Human Geography 44(6): 1047-1065.