Rural round-up

West Coast cops blame for cattle’s TB – Matthew Littlewood:

A case of bovine tuberculosis in South Canterbury appears to have come from cattle brought in from the West Coast.

TBFree New Zealand has sent out letters to more than 85 farms in South Canterbury after the reports of incidents at two farms in May.

TBFree’s Owen Churchman said the Rangitata area had been historically free of the disease, but recent DNA-testing indicated “with almost total certainty” the two farms had been infected with a West Coast strain. . .

Record $114,000 Waikato dirty dairying fine – Aaron Leaman:

A Waiuku-based company has been hit with a record $114,000 fine for dirty dairying after deliberately pumping effluent into a stream.

Fenwick Farms pleaded guilty to seven charges of unlawfully discharging dairy effluent into water and onto land between August and September last year.

The $114,000 fine, imposed by Judge Melanie Harland in the Auckland District Court, is the largest fine dished out in the Waikato region for dairy pollution. . .

Honey trademark bid declined – Laura Walters:

An attempt to trademark six labels relating to the antibacterial properties of honey has been rejected by the Intellectual Property Office of New Zealand (IPONZ) on the basis some could have potentially misled consumers.

Henry Soo Lee’s application to register six trademarks was also opposed by the Unique Manuka Factor (UMF) Honey Association.

Lee was ordered by the office to pay $6890 in costs to UMF after all six label applications were turned down. . .

Benefits of Investing In Kawerau Confirmed:

An analysis undertaken by the Crown Research Institute SCION to compare investment returns from wood processing based in Kawerau with those from other parts of New Zealand show Kawerau offers significant benefits in comparison to other wood processing centres.

These benefits are gained by locational, logistics and resource synergies and are measured by improved financial performance of businesses, better regional/national GDP impacts, employment resourcing opportunities and more effective use of co-located resources such as geothermal energy. . .

Milk processing transferred south:

Fonterra is shipping some North Island milk across Cook Strait for processing in Canterbury, as northern dairy farms hit their peak production.

Fonterra operations and logistics director Robert Spurway says the co-operative sends milk in both directions from time to time.

He says the North Island always hits it peak milk flow earlier than the south, and the surge in production from the excellent spring means processing plants in the north are already running at full capacity. . .

Commerce Commission releases draft report on statutory review of Fonterra’s 2013/14 Milk Price Manual:

The Commerce Commission has today released a draft report on its statutory review of Fonterra’s Milk Price Manual (Manual) for the 2013/14 dairy season. The Manual sets out the methodology for calculating the farm gate (base) milk price, which is the price paid by Fonterra to dairy farmers for raw milk they supply to Fonterra.

This is the first of two statutory reviews that the Commission is required to undertake each dairy season under the Dairy Industry Restructuring Act 2001 (DIRA). . .

Deer farmers head to hills but profit up – Tony Benny:

While deer farming has been pushed off most of Canterbury Plain and into the hills by dairy farming, it is now the most profitable form of dry stock farming, says Deer Industry New Zealand chairman Andy Macfarlane.

“There was one farm I worked at, this is the 2012-13 results, last week the deer returned $125 per stock unit, the sheep $100 and the cattle returned $75,” Macfarlane said.

“Generally they are well ahead but I think it would be fair to say, like all dry stock classes at the moment, farmers are looking for a confidence booster because clearly the milk price has responded to the world demand for protein quicker than the meat price.” . .

Worms key to soil health:

The anatomy of an earthworm is hardly exciting stuff.

But, Dr Tim Jenkins, a director at the Centre for Sustainable Agricultural Technologies, has a way of making the bodily functions of an earthworm sound kind of interesting.

He told about 80 farmers at a biological farming seminar in Gore recently that earthworms were a key driver of soil fertility.

A good number was 2000 worms per square metre or about 40 worms per spade, but he often found worm populations around 600 to 1000 per square metre because of poor quality soils. . .

John Wilson Fonterra’s chair-elect

Fonterra board member  John Wilson,is to succeed Sir Henry van der Heyden as the company’s chair.

Mr Wilson is a previous Chairman of the Co-operative’s Shareholders’ Council. John lives on his family dairy farm near Te Awamutu and also manages a dairy farming business in South Canterbury. He is the Chairman of South Auckland Independent Testing Society Ltd and a director of Turner & Growers Ltd.

“Over the past two years the Board has been working through a considered and disciplined process to appoint a Chairman Elect and ensure the succession plan we have is in the best interest of the Co-operative,” says Sir Henry.

“John and I will work together over the next few months to assist with a smooth transition to provide continuity for the Co-operative.”

The announcement has been welcomed by Federated Farmers Dairy Section chair Willie Leferink who said:

. . . John will be in charge of taking the world’s fourth largest dairy company forward in its second decade of life. This includes delivering to shareholders and unit holders, everything promised from Trading Among Farmers (TAF) and the strategy refresh.

“The immediate priority for John, during the transition phase, is to put to bed Fonterra’s constitution in November so we can all move forward. . . “

The passing of the DIRA legislation this week ushers in a new era for Fonterra.

It has grown considerably under Sir Henry’s leadership. Reducing the redemption risk should help the company continue to grow and prosper which will be good for its suppliers and the country.

Fonterra’s frothing won’t win friends

When the government announced proposed changes to the Dairy Industry Restructuring Act, Fonterra started frothing.

I agreed with the company and said so in a couple of post here and here.

But after further consideration of the proposals I’m having second thoughts.

One of Fonterra’s complaints was that the changes to the DIRA would mean it is subsidising foreign-owned companies. But on closer-reading I don’t see any danger of that.

The company’s competitors are Goodman Fielder which supplies the domestic market; six relatively large exporters (two farmer cooperatives, two companies with a majority of New Zealand ownership and two majority overseas-owned companies); and 19 mostly small, food processors and cheese makers – included in these are boutique cheese and ice cream companies.

One of the proposals is to set a three-year limit on access to raw milk by Fonterra’s competitors who collect a certain amount of milk from their own farmer suppliers.

That means it’s probable that all six of the large exporters would lose access to raw milk at the end of the 2014/15 year. That would reduce the amount of raw milk that Fonterra has to supply its competitors by 250 to 300 million litres so it would be supplying less milk to competitors not more..

I can’t see what Fonterra has to fear from that, especially when the 50 million litre maximum each competitor can take would be maintained.

The proposal also aims to ensure that Fonterra’s largest competitors must take the raw milk in line with the  seasonal production curve.

This is to ensure that competitors can’t take less milk when farm production is high and more in the shoulders of the season when production is lower.

Fonterra is concerned that the wording in the proposal would leave the company to cope with the added expenses of the extra capacity needed to deal with peak milk without its competitors facing the same costs.

If that is the case, then Fonterra would be subsidising other companies to some extent. But it has the opportunity to explain its concerns and offer a fairer solution while the proposals are open to consultation.

Apart from the possibility of having to accept an unfair share of the peak-milk costs, which Fonterra shouldn’t have any trouble changing, I don’t see any grounds for the complaint that it would be subsidising independent processors.

They will continue to have to pay the farm gate milk price which Fonterra pays its suppliers as they have been.

The more I look at the proposals the less I understand Fonterra’s force 10 opposition to them.

The strong reaction will get up the government’s nose and is unlikely to gain any support from the public who generally have little sympathy for the company.

Today is the last day for submissions and Fonterra has been encouraging its shareholders to make their concerns known.

But the company might have been too successful in getting farmers upset. There is a danger many are so riled they will reject the company’s proposals for Trading Among Farmers which is also covered in the proposals up for consideration.

The company has been grappling with a solution to redemption risk – shareholders redeeming shares when the price is high – for some time.

It believes that allowing farmers to buy and sell among themselves would reduce this risk.

Shareholders haven’t been particularly enthusiastic about this proposal although I am sure that fears this will be the first step towards a public float are groundless.

Any share trading will be restricted to suppliers and it won’t be any easier to get from there to a public float than it would be from the current position.

However, Fonterra’s frothing has been successful in getting shareholder oppostion to proposals for the supply of raw milk to competitors and if it’s not careful they will be just as opposed to the company’s TAF proposals.

The public will have no interest in that and given Fonterra’s  over the top reaction to the DIRA proposals it’s unlikely to have any sympathy from the government if that happens.

NZers won’t gain from DIRA changes

Fonterra doesn’t usually pick public fights with the government but it is making no secret of its strong opposition to proposed changes to the Dairy Industry Restructuring Act.

I’m not sure what further scrutiny of the way the company sets the price of milk is supposed to achieve in theory. In practice it will add compliance costs to the company while looking at only one part of the production chain from paddock to the consumer.

That is however, a relatively minor inconvenience compared with the proposed changes to Raw Milk regulations which Fonterra chair  Sir Henry van der Heyden said won’t work and will have New Zealanders subsidising increasingly foreign-owned dairy processors that don’t sell milk in New Zealand and who send their products and profits offshore.

Fonterra’s Shareholders’ Council chair Simon Couper (not online) says:

“Competition is good as it ensures our Co-operative stays lean, efficient and competitive however, there is no successful example in economics where a business is forced to subsidise its competitors, says Couper.

“The Government’s legislation proposes that New Zealand subsidise increasingly foreign-owned competitors while doing little or nothing to ensure milk is available to those processors who need it most or who assist the domestic market . . .

Based on 2011/12 projections less than half of the 570m litres supplied to other processors  this season will make it to the New Zealand domestic market with approximately 300m litres (53%) forecast to go to Independent Processors who primarily export product overseas.

Of that 300m litres two-thirds is claimed by processors with some level of foreign ownership.

“When one sector of an industry has to subsidise another it creates inefficiencies and false economies.

“This proposed legislation would further fragment the New Zealand dairy industry and weaken New Zealand’s export returns, strengthening our overseas competitors at the expense of the New Zealand economy and the average New Zealander.

 Federated Farmers also says none of the proposed changes will reduce the price of milk for domestic consumers:

“Not one of the changes proposed to the Dairy Industry Restructuring Act, or its regulations, will make milk any cheaper in the supermarkets,” says Willy Leferink, Federated Farmers Dairy chairperson.

” . . . One of our Wellington staff members tells me Karori New World has been selling two litres for $3, as long as you spend $25 in-store.

“At that price, it is identical to what Cole’s has been selling milk for in Australia, once you take out our GST and exchange rate differences.

“What concerns me is that people seem to think farmers get all of the value from retail milk sales. I can tell you our share in a one litre carton of retail milk is around 360 millilitres.

“If someone’s skimming the cream I’d suggest looking harder at the wholesale and retail ends. How come Karori New World can sell two litres of milk for $3 but another New World sells an identical bottle for $3.72?

“That’s where the margins are, instead of the farmer who produce the milk in the first place.

“So what people need to really ask of the Government and of proposed changes to the DIRA is this; where is the domestic competition? Not just at the supermarket but for farmer’s milk itself.

“Precious few of the processors who take this milk, bottle it and then put it onto the shelves of supermarkets or dairies. Too few of these processors get milk from the farmgate and compete locally as they do internationally. We really need to know why,” Mr Leferink concluded.

Among those who do supply the local market are boutique cheese and ice cream producers. If the proposed changes are enacted these small locally owned businesses could be squeezed out by bigger foreign-owned companies which then export the milk.

The ODT editorial also raises doubts over the milk shake-up:

In an attempt to placate public concern about soaring domestic milk prices, the Government appears to have alienated our biggest company and largest export earner and also unwittingly assisted its partly owned foreign-owned dairy processing competitors . . .

 . . . Increasing New Zealanders’ access to dairy products is a laudable motive, but there are real doubts that these proposals will do little more than hamstring our largest export earner.   

Farmers at a Fonterra shareholders’ meeting in Oamaru yesterday were united in their opposition to the proposals.

As one asked, where’s the benefit for New Zealand and New Zealanders if the changes won’t reduce the price on the domestic market and will both add to compliance costs for the company and help foreign-owned businesses export at Fonterra’s expense?

People are upset about the sale of farmland to foreigners which will have little if any impact on them. They would be much better turning their attention to these proposals which will help foreign-owned companies at the expense of our biggest exporter and do nothing to reduce the price of milk on the domestic market.

Fonterra opposes DIRA proposals

The government has opened consultation on its proposed response to reviews of Fonterra’s farm gate milk price setting and the Raw Milk Regulations.

Primary Industries Minister David Carter says comprehensive work by the Ministry of Agriculture and Forestry, with input from economic, regulatory and legal experts, has resulted in a set of preferred options for amendments to the Dairy Industry Restructuring Act (DIRA) and the Raw Milk Regulations.

The review recommends:

• embedding Fonterra’s current milk price governance arrangements in legislation

• requiring Fonterra to publicly disclose information about its milk price setting
• introducing an annual milk price monitoring regime to be undertaken by the Commerce Commission

And:

The preferred option for the revised Raw Milk Regulations recommends:

• a three-season limit for independent processors who source raw milk directly from farmer
• an increase in the total quantity of milk available under the Raw Milk Regulations to approximately 5% of Fonterra’s milk supply, as currently allowed for in the DIRA
• a range of maximum quantity limits for independent processors accessing milk under the Raw Milk Regulations in different months to reflect the seasonal nature of milk production.

Fonterra is far from happy and says foreign-owned processors will benefit  at the expense of  farmers and domestic consumers:

Fonterra Chairman Sir Henry van der Heyden said the proposed changes to Raw Milk Regulations won’t work and will have New Zealanders subsidising increasingly foreign-owned dairy processors that don’t sell milk in New Zealand and who send their products and profits offshore.

“The Government’s move to require more raw milk to be handed over to increasingly foreign-owned dairy companies operating in New Zealand will impose nearly $200 million of additional costs over the next three years alone and work against our efforts to reduce the price of milk in New Zealand,” Sir Henry says.

“That’s because not one of the six other major dairy processors supplies milk to New Zealanders,” he says.

“The proposed changes will see windfall profits head straight into the pockets of increasingly foreign-owned dairy co mpanies and will hinder, rather than help, New Zealanders get access to affordable milk.”

The DIRA was supposed to protect domestic consumers and competitors from Fonterra’s dominant position. It wasn’t supposed to protect foreign competitors.