Thatcher thinks

August 16, 2019


Farmers gloomier with good reason

August 13, 2019

Federated Farmers’ latest Farm Confidence Survey shows why farmers are gloomier:

Climate change policy and the ETS has topped the list of farmers’ biggest concerns for the first time since 2010, according to Federated Farmers’ latest Farm Confidence Survey.

Nearly a quarter of the 1,432 farmers who responded to the July survey said it was their No 1 worry. The second greatest concern was regulation and compliance costs (19%), followed by debt, interest and banks (10%).

“That result is hardly surprising, given analysis coming through that significant numbers of dairy and sheep and beef farms will be uneconomic if the government continues to pursue methane reduction targets that are far more stringent than are necessary to ensure there is no additional global warming,” Federated Farmers economics spokesperson Andrew Hoggard says.

“That’s coupled with concern that the targets, and government incentives for forestry, is driving blanket planting of pines on productive farmland, with huge long-term detriment to rural communities.”

Pertinent to the concerns about production losses to meet climate change targets, and costs if agriculture is put in the ETS, is that only 55% of farmers said their businesses were currently making a profit (similar to the January survey, 56%). The proportion of farms making a loss increased slightly by 2 points to 11.3%. And looking ahead, slightly more farmers expect their profitability to worsen than improve.

The July survey, conducted by Research First, found that the proportion of farmers who consider current general economic conditions to be good (24.9%) has decreased slightly over the last six months. The proportion who consider conditions to be bad remains lower, but not by much (21.3%).

Looking forward, the survey found the lowest level of confidence in the economy since July 2009, in the wake of the Global Financial Crisis.

“On that front, we’re no different to the gloom being expressed by the wider business community,” Hoggard says. “For us there is particular concern about the global uncertainty and instability arising from fallout from Brexit and US-China tensions and how that will impact on our key markets and export returns.”

All regions expect farm production to increase over the coming 12 months but they are mostly less optimistic than six months ago, with large falls in expectations for Auckland-Northland and Taranaki-Manawatu. Slightly more farmers expect to increase their spending rather than reduce it over the coming 12 months but this is also down on January’s survey.

And farmers continue to find it hard, if not harder than ever, to find skilled and motivated staff.

Climate change policy in the Zero Carbon Bill is based on emotion and politics rather than science; ignores the Paris Accord’s stipulation that mitigation shouldn’t come at the expense of food production; and will come at a high economic, social and environmental cost.

Regulation and compliance costs are rising.

Interest rates are low but banks are putting a lot of pressure on farmers to reduce debt.

Dairy and arable farms, orchards and market gardens have been struggling for good staff for years, sheep and beef farms are also having problems now.

Add to that the concerns shared by the wider business community and farmers have good reason to be gloomier.

The full survey report is here.


Fonterra getting worse to get better?

August 13, 2019

Just a few days ago Andrea Fox asked: Fonterra what is going on?

Yesterday we found out. Fonterra’s email to shareholders and media release made grim reading:

Chief Executive Officer Miles Hurrell said that as a result of the full review of the business which has taken place across the year, as well as the work done so far to prepare its financial statements for FY19, it has become clear that Fonterra needs to reduce the carrying value of several of its assets and take account of other one-off accounting adjustments, which total approximately $820-860 million.

“Since September 2018 we’ve been re-evaluating all investments, major assets and partnerships to ensure they still meet the Co-operative’s needs. We are leaving no stone unturned in the work to turn our performance around. We have taken a hard look at our end-to-end business, including selling and reviewing the future of a number of assets that are no longer core to our strategy. The review process has also identified a small number of assets that we believe are overvalued, based on the outlook for their expected future returns.

“While the Co-op’s FY19 underlying earnings range is within the current guidance of 10-15 cents per share, when you take into consideration these likely write-downs, we expect to make a reported loss of $590-675 million this year, which is a 37 to 42 cent loss per share. . . 

The company is making several one-off financial adjustments:

  • Our accounting valuation for DPA Brazil will be impaired by approximately $200 million. This change is mainly due to the economic conditions in Brazil. While they are improving, consumer confidence and employment rates are not at the level required to support the sales volumes and price points our forecast cashflows were based on. 
  • “As a result of the previously announced sale of our Venezuelan consumer business, and the closing of our small Venezuelan Ingredients business, due to the country’s economic and political instability, we have made an accounting adjustment of approximately $135 million relating primarily to the release of the adverse accumulated foreign currency translation reserve.  
  • “Our carrying value for China Farms will be impaired by approximately $200 million due to the slower than expected operating performance. While the extent in which we participate is under strategic review, the fresh milk category in China continues to look promising and is growing. 
  • “In our New Zealand consumer business, the compounding effect of operational challenges, along with a slower than planned recovery in our market share has resulted in us reassessing its future earnings. We are now rebuilding this business and, as part of this, have sold Tip Top which allows the team to focus on its core business. The combined impact is a write-down of approximately $200 million. 
  • “Our Australian Ingredients business is adapting to the new norm of continued drought, reduced domestic milk supply and aggressive competition in the Australian dairy industry. This includes closing our Dennington factory, which combined with writing off the goodwill in Australia Ingredients, results in a one-off impact of approximately $70 million (this includes the $50 million previously announced as part of the Dennington announcement).

“These are tough but necessary decisions we need to make to reflect today’s realities. . . 

Chairman John Monaghan said that in-light of the significant write-downs that reflect important accounting adjustments Fonterra needed to make, the Board had brought forward its decision on the full year dividend for FY19.

“We have made the call not to pay a dividend for FY19. Our owners’ livelihoods were front of mind when making this decision and we are well aware of the challenging environment farmers are operating in at the moment.

“Ultimately, we are charged with acting in the best long-term interests of the Co-op. The underlying performance of the business is in-line with the latest earnings guidance, but we cannot ignore the reported loss of $590 – $675 million once you look at the overall picture.

Board’s must act in the best interests of the company which is not always in the best short-term interest of shareholders.

“Not paying a dividend for the FY19 financial year is part of our stated intention to reduce the Co-op’s debt, which is in everybody’s long-term interests. . . 

The action that is being taken is a result of bad investments in the past.

Quitting them is both necessary and sensible, but where to from here, what have the board and management learned and what changes must still be made?

Sometimes when a company is in a mess it has to get worse before it gets better.

Suppliers and shareholders will accept the getting worse for a short time  but will run out of patience if the company can’t show it is on the way to getting better soon.


Rural round-up

August 8, 2019

Meat industry concerned by education shake-up :

A shake-up of vocational education could be a backwards step for training in the meat industry, the sector’s leaders say.

Last week, Education Minister Chris Hipkins announced seven key changes in store for on-the-job training and apprenticeships, which included the creation of a “mega-polytech”.

Up to seven industry-governed Workforce Development Councils would also be created to “replace and expand” Industry Training Organisations (ITOs). . . 

Consumer trust is key for future success of NZ food industry:

Consumer trust has never been more valuable to the New Zealand food industry and is set to play a key role in its future success, a visiting international agricultural expert has told the horticulture sector. Yet winning and sustaining this trust has also never been more complex.

Speaking at the New Zealand Horticulture conference in Hamilton last week, the Sydney-based general manager for RaboResearch Australia and New Zealand Tim Hunt said consumer trust was becoming an increasingly precious commodity for New Zealand food producers.

“New Zealand’s emerging markets, like China and South East Asia, place a high value on food safety and the process of food preparation, while more mature wealthy markets are willing to pay for sustainability, animal welfare, fairness and attractive provenance,” he said. . . 

‘No ordinary job’: Dairy farmers put in the hard yards over calving – Esther Taunton:

Most calves are born like Superman, with their front legs up over their heads, but sometimes even Superman needs a hand, Taranaki sharemilker Jody McCaig says.

McCaig and her husband, Charlie, farm at Te Kiri, inland from Opunake, and like dairy farmers around the country, they’re headed into another busy calving.

At the height of the season, up to 50 calves a day will be born on the 1000-cow, 320-hectare property. . . 

Stop pigeonholing farm systems– TIm Fulton:

Support for regenerative agriculture is building across New Zealand and Australia. As Crown-run Landcare Research seeks state funding to test the principles and practice Tim Fulton spoke to Australian soil science leader Professor John McLean for an assessment of the movement.

At home with a newborn in southeast Queensland Associate Professor John McLean recently read a an article on regenerative agriculture in the special Fieldays issue of Farmers Weekly.

Bennett is a principal research fellow at the university’s Centre for Sustainable Agricultural Systems and the immediate past president of Soil Science Australia. . .

New Zealand’s first carbon neutral milk plant – Nigel Malthus:

French global food company Danone says it will spend NZ$40 million on its Nutricia spray drying plant at Balclutha to achieve net carbon neutrality there by 2021.

NZ operations director Cyril Marniquet says it will make the Balclutha plant NZ’s first carbon neutral one of its kind.

A NZ$30m biomass boiler will reduce the plant’s CO2 emissions by 20,000 tonnes per year – the equivalent, the company says, of removing 60,000 cars from NZ’s roads. And a more efficient waste water treatment plant will meet Danone’s stringent global clean water standards.  . .

China confirms it is suspending agricultural product purchases in response to Trump’s new tariffs – Kate Rooney:

China confirmed reports that it was pulling out of U.S. agriculture as a weapon in the ongoing trade war.

A spokesperson for the Chinese Ministry of Commerce said Chinese companies have stopped purchasing U.S. agricultural products in response to President Trump’s new 10% tariffs on $300 billion of Chinese goods.

“This is a serious violation of the meeting between the heads of state of China and the United States,” the Minister of Commerce said in a statement Monday that was translated via Google. . . 


Food security paramount

July 26, 2019

Horticulture New Zealand says  the Zero Carbon Bill must amended to include all the Paris Agreement, including safeguarding food production.

‘At the moment, the Bill just focuses on one part of the Agreement, climate change,’ said HortNZ Chief Executive, Mike Chapman who appeared before the Climate Change Select Committee this morning. 

‘The full Agreement makes it quite clear that countries need to find ways to adapt to climate change “in a manner that does not threaten food production”. 

‘As currently drafted, the New Zealand Bill makes no mention of food production.  To the horticulture industry, this is a significant oversight given this legislation will be fundamental to New Zealand’s future. 

It’s also a sign of how blinkered the government is to primary production and its importance to New Zealand.

‘New Zealand’s primary sector is already one of the most carbon efficient in the world.  However, to meet future obligations, we will need to reduce the carbon needed to produce the whole food basket, while not reducing the volume or nutritional value of that food.’ 

Mr Chapman said as it stands, the Bill is like saying a half built house is completely finished.

‘We feel strongly that the Government needs to honour the full Paris Agreement and make amendments to the Bill to ensure that New Zealand has “food security”. 

‘By the term “food security”, we mean that our country is able to grow all the fresh and healthy food that we as New Zealanders need.  This will be in a world where it is increasingly difficult to import fresh food, due to all manner of challenges.  The impact of climate change, isolationism and trade tariffs will be the key issues.’ 

Food security ought to be of paramount importance to any government.

In New Zealand, given the importance primary production plays in the economy our government ought to be concerned not just about our ability to feed ourselves, but our ability to feed people in other countries too.

Instead it’s allowed its focus on saving the planet to blind itself to the necessity of feeding the country and the world.

The government is asking us all to make sacrifices and pay higher prices to reach its commitment to carbon reduction under the Paris Accord but completely ignoring the Accord’s stipulation that carbon mitigation should not come at the expense of food production.

This blindness is even worse when our contribution to global emissions is tiny and our contribution to world food supplies is significant.

If the government wants us to accept the science on climate change it must follow the science in its response.

If it wants us to help it meet its commitment reduce emissions under the Paris Accord, it must accept the Accord’s requirement to meet commitments without threatening food production.

HNZ’s full submission is here.

 


Science isn’t settled on response

July 22, 2019

Bjorn Lomborg accepts that climate change is a real, man-made problem but he says trillions of dollars will be wasted on ineffective policies:

Climate campaigners want to convince us that not only should we maintain these staggering costs, but that we should spend a fortune more on climate change, since our very survival is allegedly at stake. But they are mostly wrong, and we’re likely to end up wasting trillions during the coming decades. . . 

Global warming is a real, man-made problem — but it is just one of many challenges facing humanity. We shouldn’t base our policy decisions on Hollywood movies or on scare scenarios but on the facts. According to the UN Intergovernmental Panel on Climate Change, even if we did absolutely nothing to respond to global warming, the total impact by the 2070s will be the equivalent to a 0.2 per cent to 2 per cent loss in average income. That’s a challenge that requires our attention — but it’s far from the end of the world.

Over-the-top environmental activists are not only out of synch with the science but they also are out of touch with mainstream concerns. A global poll by the UN of nearly 10 million people found that climate change was the lowest priority of all 16 challenges considered. At the very top, unsurprisingly, are issues such as better education, better healthcare and access to nutritious food. We need to address climate change effectively — but we should remember that there are many other issues that people want fixed more urgently. . .

Climate change, like many issues which become politicised, is generally a pre-occupation of educated, healthy, people with more than enough to eat and generally with middle or upper incomes.

Many of them while wanting “something “ to be done are unaware of how costly, ineffective and unsustainable most of the “somethings” being promoted are.

The present approach to climate change isn’t working. If fully implemented, analysis of the leading climate-economic models shows that the Paris Agreement will cost $US1 trillion to $US2 trillion every year in slowed economic growth. Our response to climate change is so expensive because alternative energy sources remain expensive and inefficient in most scenarios. It is still very expensive to switch from fossil fuels — hence the fortune being spent on subsidies, to little overall effect.

Despite costing a fortune, the Paris Agreement will have virtually no impact on global temperatures. The UN Framework Convention on Climate Change has estimated that even if every country makes every single carbon cut suggested in the Paris treaty to the fullest extent, CO2 emissions would be cut by only 1 per cent of what would be needed to keep temperature rises under 2C. Incurring an annual $US1 trillion cost while failing to rein in temperature rises is a very poor idea.

A realistic and credible response to global warming needs to bring China and India on board. They are not going to slow their economies and imperil the fossil-fuel-driven growth that is lifting millions out of poverty.

When 27 of the world’s top climate economists and three Nobel laureates looked at the gamut of potential climate solutions for my think tank, Copenhagen Consensus, they found that the current approach, which tries to make fossil-fuel energy as expensive as possible, is very inefficient. Moreover, it is likely to fail since citizens in most countries are unlikely to accept the steep energy price hikes that these policies require. We can look to France’s “yellow vest” protests or to the elections in The Philippines, the US and Australia of politicians who loudly reject these policies to see that voters are making their choices heard. . .

Price increases would have to be prohibitively high to slow people’s use of fossil fuels and that would come at a very high political cost.

What’s needed instead, is much more research to find the green technologies that will replace fossil fuels. Lomborg says that would leave money to fix other problems.

His suggestions for those fixes include access to contraception; better nutrition for pregnant women and infants; and more investment in agricultural research:

This will make farmers able to produce more nutritious, reliable crops, especially in developing and fragile countries. We can generate extra yield increases by investing in agricultural R&D and by boosting the use of better (sometimes genetically modified) seeds, which give farmers more resilience and ability to withstand climate shocks, while lifting the poorest out of hunger. For a cost of $US2.5bn a year, we can produce benefits worth $US85bn. Each dollar spent will help generate more food security, reduced food prices and other social benefits worth $US35. . .

He also recommends treating TB which is still a scourge in poor countries.

Then he comes to trade:

The most powerful thing governments could do to transform lives would cost next to nothing at all: embrace freer trade. During the past 25 years, China lifted 680 million people out of poverty through trade, and there are similar stories from Indonesia, Chile and others. Genuine, global free trade would have benefits that would reach every single country. Far more than any aid dished out by donor countries, lowering trade barriers is the most powerful way to reduce extreme poverty. A completed global Doha trade deal would make the world $US11 trillion richer each and every year by 2030 according to research considered by the Nobel laureates. . .

This is such a simple solution that would help the poorest people most but it needs the political will to achieve it.

In developing nations, the increased wealth from the Doha deal would be equivalent to an extra $US1000 for every single person, every single year by 2030. This alone would cut the number of people living in poverty by 145 million in just 11 years. The annual cost would be $US20bn in pay-offs to those sectors (such as farmers in wealthy countries) who would lose out, and who politically are holding up the deals.

The list goes on. We could halve malaria infections for $US500m annually, save a million children’s lives through $US1bn of increased immunisation, triple preschool access in Africa for $US6bn and get every child in Africa through primary school for $US9bn. We could halve global coral reef loss for $US3bn, and save two million babies from death every year for $US14bn through policies such as providing expecting mothers with nutrients and protection from disease, having nurses and clean facilities at birth and ensuring best practice childcare afterwards.

All of these amazing policies will cost in total $US78bn. Together with the $US84bn for green energy R&D, the total comes to $US162bn — or what we’ll spend on subsidising inefficient renewables this year.

The total benefit to humanity from achieving this total list of policies will be around $US42 trillion. This would be the same as increasing the average income in the world by 50 per cent, and the benefits would mostly help the world’s poorest.

Of course, we also can spend 10 times as much on the Paris Agreement and generate about a thousand times fewer benefits from slightly reduced temperatures.

The choice really is clear. Do we want to be remembered in the future for being the generation that overreacted and spent a fortune feeling good about ourselves but doing very little, subsidising inefficient solar panels and promising slight carbon cuts — or do we want to be remembered for fundamentally helping to fix both climate and all the other challenges facing the world?

Whether or not the science on climate change is settled the science on the response is not.

One reason for that is the response is driven by politics and bureaucracy rather than science.

But Lomborg’s prescription would not only be more effective, it would be a lot more politically palatable than any of the current ones which will add huge costs with little if any benefit.

You can read more from him at lomborg.com  and you’ll find the think tank he heads, the Copenhagen Consensus, here.


Rural round-up

July 8, 2019

Katie Milne addresses national conference:

Kiwis can be proud of the rural women and men who produce the top quality food that arrives daily in supermarkets, and the extra which is shipped offshore as exports that help fuel our economy.  Over 65% of our exports come from agricultural food production and we produce it with a lower carbon footprint than any other country in the world.  

Biosecurity threats, geopolitics, alternative proteins, robotics, disruptors, food and environment sustainability…there’s no shortage of challenges and change confronting us. 

But you should also know – especially if you’ve been fortunate enough to catch some of the keynote addresses and panel discussions of the inaugural Primary Industries Summit that Federated Farmers organised and has hosted Monday and Tuesday – that New Zealand also has a wealth of ideas, talent and drive to deal with these big issues coming at us. . .

Tougher bank capital rules could slice 10% from dairy profits – Rabo NZ – Rebecca Howard:

(BusinessDesk) – Stricter bank capital requirements would severely dent dairy farm profits if the Reserve Bank goes ahead as planned, warn dairy interests in submissions on the contentious proposals.

“Our initial estimates are that the proposals could – at least in the short term – result in approximately a 10 percent decrease in profit for the agriculture sector,” Rabobank New Zealand said in its submission. . .

Trees replace top cattle – Annette Scott:

As far north as sale yards get in New Zealand the Broadwood selling centre in Northland hosted one of the country’s more notable capital stock clearing sales last week.

On behalf of Mark and Michelle Hammond of Herekino, Carrfields Livestock held the sale of a Hereford beef herd that put 50 years of top-quality genetics under the hammer, the animals’ grazing land destined for pine trees. . .

Ruapehu rural reading scheme spells out a winning idea  –  Katie Doyle:

A pair of librarians from the central North Island town of Taumarunui are bringing a love of reading to rural school children.

Fiona Thomas and Libby Ogle have started their very own mobile library – each month ferrying a load of books to two isolated primary schools in the Ruapehu District.

The idea came to life eighteen months ago when Mrs Thomas realised some kids in the region couldn’t access the library because they lived too away. . .

Blue Sky reports best result in 8 years – Rebecca Howard:

(BusinessDesk) – Southland meat processor and marketer Blue Sky Meats says the year to March was its best result in eight years as a strategic plan bore fruit.

The company, which is due to release its annual report shortly, said the March financial year ended with revenue up by 34 percent to a record $140 million. Pre-tax profit was up 36 percent at $5 million. . .

Overseas investors fined almost $3 million for illegal purchase of Auckland properties:

The High Court yesterday ordered the overseas owners of two rural properties at Warkworth, north of Auckland, to pay $2.95 million to the Crown after an Overseas Investment Office (OIO) investigation found they were bought without consent. The properties were bought in 2012 and 2014.

The court ordered the owners to sell the properties and pay penalties, costs and the gain made on the investment.

The overseas owners – Chinese businessmen Zhongliang Hong and Xueli Ke, and IRL Investment Limited and Grand Energetic Company Limited – should have applied to the OIO for consent to buy both properties because they are rural land of more than five hectares. . .

Latest technology to be demonstrated at the Horticulture Conference 2019:

Technology that will help fruit and vegetable growers now and in the future will be demonstrated at Our Food Future, the Horticulture Conference 2019 between 31 July and 2 August at Mystery Creek, Hamilton.   

‘We’ve gone all out to ensure that this year’s conference features demonstrations of technology that can help growers tackle some of the challenges that they face,’ says Horticulture New Zealand Chief Executive, Mike Chapman. 

‘From biological control products for crop protection to robots for asparagus harvesting and greenhouse spraying, they will all be demonstrated during the morning of second day of the conference.  . .

Ben Richards becomes Bayer Marlborough Young Viticulturist of Year 2019:

Ben Richards from Indevinbecame the Bayer MarlboroughYoung Viticulturist of the Year 2019 on 4 July following the competition held at Constellation’s Drylands Vineyard.

Congratulations also to Jaimee Whitehead from Constellation for coming second and Dan Warman also from Constellation for coming third. . 


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