Rural round-up

Rabobank Report: Moving Globally; What role will China play in the global beef market?:

Rabobank sees great potential in China’s beef market, and believes that Chinese investors will play an influential role in the global beef market over the next decade. According to Rabobank’s latest report, Moving Globally: What role will China play in the global beef market?, China’s beef demand will grow an additional 2.2 million tonnes by 2025. Driven by the weak domestic production, but with strong demand, the beef sector will likely become the first agricultural sector where China has high integration with the rest of the world and Chinese investors are expected to play an influential role in the global beef market.

In addition to the volume gap, China’s beef market also demonstrates potential for value-added and branded beef products. Strong demand from the food service and retail market channels provides opportunities for both Chinese and foreign companies in the further processing sector. . .

 

Fonterra’s restructure more about poor strategy than milk price – Allan Barber:

When Fonterra was formed back in 2001, there was a great sense of optimism about the potential for a New Zealand dairy company to compete on a truly global scale. The industry’s infighting and parochialism would be a thing of the past and the clear intention was to use the greater efficiencies and scale to create a substantially better performing business model.

The big question 14 years down the track is whether that objective has even remotely been achieved. Fonterra is the world’s leading exporter of milk products and the fourth largest dairy processor, so achievement to date appears consistent with the objective. But for many observers there was another, more ambitious expectation: to establish an internationally competitive value added business to compare and compete with Nestle and Danone. . .

Dairy sector needs to work together to manage downturn:

National accounting and business advisory firm Crowe Horwath is calling on all stakeholders in the dairy industry to work together to help the sector get through the current difficult period of lower milk solid prices.

On the back of dairy companies announcing a string of forecast milk price downgrades and prices continuing to plunge at the Global Dairy Trade (GDT) auctions, predictions are the current hard times for the dairy sector could potentially last another 18 months to two years.

Crowe Horwath says given the scale of the challenge now being faced by the industry, doing nothing is not an option for anyone involved, including farmers, banks, farm consultants and business advisors. . .

 

Fish & Game Calls for Fonterra to Lift Its Game After Pollution Conviction:

Fish & Game says Fonterra needs to lift its game after the dairy giant was fined $174,000 for several pollution offences under the Resource Management Act.

The Bay of Plenty Regional Council prosecuted Fonterra for polluting the and other waterways after several wastewater system failures at Fonterra’s Edgecumbe dairy plant.

The offences occurred several times between September 2014 and April 2015.

Fonterra pleaded guilty to six charges and was sentenced in the Tauranga District Court by Judge Smith. . .

 

I’m worried! I’m sympathising with organic farmers over a land use conflict! – Jim Rose:

Writing this blog of sound mind and sober disposition, I still have considerable sympathy with two organic farmers over a land use conflict they have with the neighbouring gun range.

Local land use regulations allows a gun club to set up 600 m away with competitive shooting days all day for 88 days a year. That is a voluntary self restraint. They could hold shooting competitions every day of the year. The local land use regulations allow the use of guns on rural land. The gun club used this absence of a prohibition on the use of guns in the frequency of use to set up a gun range to fire guns all day long on rural land. . . .

Market Continues to Show Strength:

New Zealand Wool Services International Limited’s General Manager, Mr John Dawson reports that a continuing upward trend at today’s South Island wool sale saw prices increase.

The weighted indicator for the main trading currencies decreased from 0.6314 to 0.6181, down 2.1 percent. The US dollar rate was down to .6520 from .6670 which meant increased prices in NZC terms.

Of the 5,564 bales on offer 5,260 sold, a clearance of 95 percent. . .

 

Matariki Forestry Group announces recapitalisation:

Matariki Forestry Group (“Matariki”) today announced a NZ$242 million capital infusion from Rayonier Inc., its largest shareholder. This injection of capital will be used for the repayment of all outstanding amounts under its existing NZ$235 million credit facility and for general corporate purposes.

Upon completion of this capital infusion, Rayonier’s ownership in Matariki will increase from 65% to approximately 77% and the Phaunos Timber Fund ownership will be reduced from 35% to approximately 23%. The capital infusion is subject to certain closing conditions including New Zealand Overseas Investment Office approval and is expected to close by year end. Matariki will realise interest cost savings of approximately NZ$15 million annually as a result of the recapitalisation. . .

 

NZARN says strategic feed approach key to farmer viability:

Nutrition experts have entered the milk price payout debate saying that a strategic approach and optimising home grown and supplementary feed resources are key to long-term viability.

The New Zealand Association of Ruminant Nutritionists (NZARN) urges farmers, in an article published on their website (www.nzarn.org.nz) to benchmark themselves against the best performing farms to identify areas for improvement.

Dr. Julian Waters, NZARN Chairman says, “Maximising utilisation of home grown resources such as pasture, silage and crops should be the basis for a profitable business, with a sound strategy to incorporate supplements to increase efficiencies when home grown feed is limited.” . . .

 Internet Provider Puts Farmers’ Wellbeing First:

New Zealand internet provider, Wireless Nation, further demonstrates its commitment to the rural sector in a new agreement with Farmstrong, an initiative to promote wellbeing for all farmers and growers across New Zealand.

Wireless Nation’s zero-rated data agreement means that its Satellite Broadband customers can access Farmstrong’s website without the data counting towards their data cap.

Wireless Nation’s technical director, Tom Linn says he is passionate about making internet connectivity easier for people living in rural areas. . .

New Forests agrees to purchase Marlborough timber plantations from Flight Group:

New Forests today announced that it has reached agreement to purchase approximately 4,200 hectares of freehold land and softwood plantations from the Flight Group. The plantations consist of radiata pine and are located in the Marlborough region of New Zealand’s South Island.

The agreement forms part of a larger transaction by Flight Group, including the purchase of the Flight Timbers sawmilling assets by Timberlink, an Australian timber products processor that is also an investee company of New Forests. Completion of the plantation purchase by New Forests is subject to approval by the Overseas Investment Office. . .

 

4 Responses to Rural round-up

  1. Richard says:

    Alan Barber has identified Fonerta’s problems brilliantly. He would get an A+ if this was an MBA case study. Specifically Fortera’s problems are structural – no separation between commodity and added value, Where should blame be placed? farmer shareholders who have resisted separation and change.
    Farmers never seem to appear to recognize that they should be looking at the end user/s – not just their farm gate

    It looks like a repeat of the history of sheep farming

  2. tom hunter says:

    While Barber’s analysis is solid he points out that this criticism is not new and has been made by others over the years.

    A decade ago I worked as an IT project manager in Fonterra as the massive new SAP system was put in place. The business strategy behind it was that it would enable Fonterra to easily hookup with big consumers overseas (think Kraft) and become an integral part of their operations. The theory was that we would be so locked into them that things like price auctions would not matter; price would be trumped by shed-to-shop quality control, rapid and accurate matching of production to demand, and reliability.

    Nice idea. It hasn’t worked.

    I recognise the challenge of moving away from bulk commodities like WMP and the like, but while Fonterra cannot be a giant version of Tatua I do not accept that it cannot become a dozen Tatua’s over time.

    But that takes R&D and Capital, and Fonterra is in a worse debt situation than it was a decade ago when it plumped for the strategy described above.

    Which brings me to the one-off, no-interest loan. Great. A sop to dairy units with debt problems: here, let us take over some of your unsustainable debt for you. No interest and payable upon Fonterra hitting $6/kg. This on top of the financial assistance given to several hundred farmers to purchase extra shares. Scary stuff. Will I take advantage of it even when I don’t need it: you kidding me; free money?

    The whole thing smells of tactical responses – to be less kind, scrambling to apply bandaids in a triage situation – which is what happens when you have a plan that’s failed and have not yet produced a new one.

    It’s that last point that scares more than anything I heard today.

  3. Freddy says:

    I wonder how that 50c/kgms loan will be secured. .? could become quite a messy business. .!

  4. Richard says:

    TH -I agree with you Barber’s analysis is old hat. But what are Fontera going to do about it?

    The 50c/kgms appears to be a sop to farmers, developed hurriedly, a bandage, in the last week
    The AGM did not address Barber’s concerns
    Directors got off lightly

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