Over capacity in dairy processing has been raised as a ''real risk'' to New Zealand's dairy industry.
The uncertain future of the dairy sector was a key theme in KPMG's Agribusiness Agenda released yesterday.
New processing operations were emerging, particularly from well-capitalised international companies.
That had the potential to ''lure'' farmers away from their existing co-operative relationships and change the value generated from the New Zealand milk pool permanently, KPMG's global head of agribusiness Ian Proudfoot said.
Rising competition for milk was raising questions about the future structure of the industry and the necessary regulatory framework.
The belief that prices had moved to a new plain, driven by insatiable Chinese demand, had gone.
Supply had outgrown ability to add value to milk, resulting in more product being sold through commodity channels.
The relevance of the New Zealand milk pool to global supply was declining, as countries grew domestic supply and export competitors increased production.
The domestic scene was also changing, as was highlighted by discussions with primary sector industry leaders, where there was speculation on the share of milk Fonterra would be collecting five or 10 years from now.
While many scenarios were suggested, few had Fonterra retaining more than 70% of total supply, and most had between 15 and 20 companies picking up milk within the next 10 years.
Fonterra's market share was 96% when the co-operative was formed in 2001 and it was now about 86%. Concerns were also expressed about the ability of New Zealand milk to retain a ''reputation premium'' in market.
The involvement of Fonterra in milk pools around the world, together with the greater involvement of international traders in the New Zealand pool, was highlighted as a risk.
A key lesson from the milk price decline was that New Zealand's primary sector must be more proactive about finding more sustainable ways to generate revenue for the future, Mr Proudfoot said.
KPMG analysis showed the annualised growth in the value of the country's primary sector exports between 2002 and 2014 was 4.5%.
The majority of that was driven by commodity price movements and volume shifts, suggesting little progress had been made in realising value-added growth.
''Continuing to rely on commodity price and volume movements is simply not a sound growth strategy.
''Instead, we need to focus on achieving premium prices for our products, and capturing downstream value by taking greater control of our products throughout the supply chain.''
There was ''exponentially greater value'' available to be captured the closer a company was able to get to the consumer of its products.
Many New Zealand companies focused their activities on production and processing activities, which sat at the lower-value end of the supply chain, he said.
KPMG estimated the average value returned to the producer's gate lay between 10% and 30% of the final retail value of the product, with the return for many key sectors towards the lower end of that range.
''The obvious question is why companies continue to invest heavily in processing assets, when it is increasingly apparent that realising significant value requires bold investments that enable companies to get closer to their ultimate consumer.''
Those investments were often intangible in nature, being in people, innovation, brands and consumer intricacy, and appeared more difficult for companies to understand and commit to, he said.
A slight change of outlook within the primary industry was sensed, with leaders having less confidence, compared to recent years, in the industry's ability to fully capitalise on its potential.
Competitors around the world were tracking the same market trends as New Zealand's producers.
Many had learnt about the culture necessary to operate in a competitive market environment from studying the New Zealand system, and were now putting those lessons into play to become ''highly effective'' competitors in export markets.
Increasing competition made it the right time now to think deeply about how the primary sector positioned itself to compete and win in the markets of the future, he said.