Rural round-up

Wetlands bring adverse effects farmers struggling – Paul Melville :

For the last two years, many farmers have appealed what they view as unworkable freshwater regulations.

The chief culprits have been rules requiring resource consents for planting a winter forage crop, rules that make paddocks of weeds so-called protected wetlands, and rules that require fencing of thousands of mountain streams.

Some 11,000 farmers across New Zealand were in breach of new fertiliser cap rules because a website wasn’t ready in time for them to comply.

But farmers are not alone. The wetland rules in particular apply to the entirety of New Zealand. What has become apparent, however, is that, under the regulated definition of a wetland, we actually have many more “wetlands” than first anticipated. With rules that make it impossible to do any earthworks within 100 metres of a wetland, and wetlands potentially on every corner, the Ministry of the Environment released proposed changes to these rules in May that would create a pathway for quarries, landfills, clean fills, urban development, mining and critical infrastructure. . . 

Oops the world price dips for dairy products but low NZ dollar is a compensating factor – Point of Order :

Dairy prices have fallen  at the  Fonterra  GDT  auction this  week.  The average price at the fortnightly sale fell 3.5% to US$3911 ($NZ6830) a tonne, after rising 2% in the previous auction.

Prices have generally been falling since hitting a record high in March. But   with the  NZ dollar  now  down around the US57c mark, the  impact   of  the  latest fall  on the  farmgate  payout  will not  be as  great as it  at  first appears.

The price of wholemilk powder, which strongly influences the payout for  farmers, fell 4% to US$3573 a tonne.

Prices for other products fell  also: butter was down 7% to $4983,skim milk powder down 1.6% to $3497,  and cheddar down 3.8% to $4,966. . .

Oh thats a bit untidy. pic.twitter.com/iozohpyFcV

— Blocka 🧢 (@blairdrysdale77) October 5, 2022

This unrelenting wet is squeezing me dry – Steve Wyn-Harris:

There’s nothing glorious about mud, mate.

The big wet. There is no other term I could use for these past four months.

It’s been horrible.

Other regions have had heavy destructive flooding, which we’ve fortunately missed. It’s the constant persistence of rainfall and no drying that has been difficult here. . . 

There’s strength in numbers for future farms – Neal Wallace:

Data-driven transformation of farms is the way forward, panel says.

Rob Macnab believes New Zealand sheep and beef (ngā kau me ngā hipi) farming systems are on the cusp of an exciting era but warns that farmers need confidence – and assistance to collect and understand data to drive that change.

A consultant with Total Ag in the Waikato, Macnab was part of an online panel discussing how to match consumer expectation with farm business realities. 

He said collecting data on greenhouse gas emissions is a new skill set for many farmers (kaimahi pāmu). They need to be given the tools and scientific support to ensure collection is accurate and the information applicable. . . 

Keeping the cattle mooving – Shawn McAvinue :

Shawn McAvinue talks to Palmerston Saleyards chairwoman Anita Vickers before the start of the first Palmerston Spring Cattle Sale last week.
Q How long have you been chairperson of the saleyards?

You can say chairman, none of this politically correct bull… I’ve been chairman since 2020.

Q What does the role call for?

Looking after the saleyards, general maintenance and making sure everything is happening.

Q What will you do today? . . 

We work everyday to be as efficient as possible with how we farm the land by reducing any excess inputs/passes and fuel use

It not only makes economic sense it also makes environmental sense

In Agriculture the 2 normally go hand in hand #ThoughtsFromaFarmer pic.twitter.com/hQtsdmPbo2

— John Kowalchuk🧢 (@kowalchukfarms1) October 2, 2022

Dutch farmers face a major uncertainty – Sudesh Kissun:

European dairy co-operative FrieslandCampina has put on hold a cash payment to farmer members due to uncertainty over the Dutch Government’s nitrogen proposals.

Chief exectuive Hein Shumacher says the Dutch Government’s target for reducing nitrogen pollution in some areas by up to 70% by 2030 is “a major uncertainty”.

“For this reason, we are exercising extra caution in terms of our outlook for the rest of the year, and we have decided to forego the interim pro forma supplementary cash payment to our member dairy farmers.

” Dutch farmers have been taking to the streets in the Netherlands to protest, calling the targets unrealistic. . . 

 

Fonterra holds 4th place in global dairy rank

Fonterra has held fourth place in Rabobank’s global dairy rankings:

  The latest annual Rabobank survey of the world’s largest dairy companies highlights the giants of one of the world’s most valuable food sectors.

The last 18 months have seen most of these players battle challenging conditions, with weak economies and supply constraints undermining sales growth in key markets. Againt this backdrop, mergers and acquistions have become an attractive route to growth and profitability. But with billion dollar deals increasingly hard to come by, dairy giants will need to acquire or tie up with more companies to sustain the same rates of growth in future. Those adept at acquiring and embracing new businesses will remain well positioned to survive and thrive. 

“Once again, giants Nestlé, Danone and Lactalis top the list, showing that the world’s largest dairy companies are reasonably entrenched,” commented Rabobank analyst Tim Hunt. “We continue to see some companies outperform their peers in sheer growth terms. In particular, the Chinese giants Yili and Mengniu, which saw their sales expand by 14% and 20% respectively, with Yili entering the top 10 for the first time ever”. 

Saputo continued its march up the list to push to eighth place, in part due to several recent acquisitions. Meiji and Morinaga slipped down the list largely due to the sharp decline in the value of the Yen (in which most of their products are sold).  

 

 

 

 

 

 

 

 

 

 

2013 was a challenging year for most of the world’s major dairy companies, with stagnant sales volumes in most OECD dairy markets. Acquisitions have become a more attractive route to grow sales and in 2013, there were 124 dairy transactions, up from 111 in 2012 and the highest since 2007.

Positioning for maximum effectiveness in the expanding Chinese market remains prominent. In 2013, joint ventures were announced between Mengniu and Whitewave and COFCO and Danone while Yili announced a partnership agreement with Dairy Farmers of America.

Mengniu took a stake in China Modern Dairy to secure raw milk supply. A further joint venture is pending between FrieslandCampina and Huishan. Despite the increase in transactions, the dairy sector saw no billion dollar deals in the 12 months to 30 June 2014.

While underlying growth will pick up in coming years, many markets will not return to the rapid growth rates seen before 2008. In this context, mergers, acquisitions and joint ventures will remain a key avenue to growth and profitability.

“The catch is that the number of attractive targets is shrinking and multiples have risen,”  explained Hunt. “With billion dollar value deals harder to come by, dairy giants will need to acquire or tie up with more companies than in the past to sustain the same rates of growth”.

Fonterra made a record pay out to its suppliers last season but that was overshadowed in the media by its poor handling of the whey protein concentrate debacle.

However, it maintained its 4th place in the rankings.

Fonterra still #4 in global dairy

Fonterra has maintained its fourth place in Rabobanks top 20 dairy rankings.

The latest Rabobank survey of the world’s largest dairy companies (ranked by dairy product turnover1) has some familiar features. Nestlé and Danone remain at the top of the table and 18 of the 20 companies are the same as 12 months prior.

 

However,the survey also demonstrates some significant changes. The most notable shift at the top end of the table is the continued rise of Lactalis. With ongoing sales growth and the acquisition of Parmalat and Skånemejerier, Lactalis has moved from fourth into third position, and is now within striking distance of Danone. But the biggest strides up the table were made by the Chinese giants. Having entered the top 20 for the first time in 2010, Yili moved up four places into 15th and Mengniu moved up two places into 16th, riding the wave of domestic market sales growth.

 

Perhaps most striking is that despite the rise of the Chinese, the list of the world’s 20 largest dairy companies remains dominated by those based in OECD countries.

 

The headquarters for 18 of the 20 are in the EU, North America, Japan or New Zealand.

Shifting global dynamics call for strategic change:

This highlights one of the key challenges facing the world’s largest dairy companies. As outlined in Rabobank’s January 2012 report Show me the money, growth is expected to slow in these traditional dairy markets over the next five years, as the industry battles economic and demographic headwinds, already high dairy consumption levels, overweight consumers and concerns over the cost of dairy. By contrast, emerging markets such as China, South East Asia, India and Latin America are expected to offer good sales growth, with almost the opposite trends in place.

These dynamics have been developing for some time, and many of the world’s largest dairy companies have been working for years to ensure they are well placed to survive and thrive in this shifting market place. Those who are less well placed are now moving quickly to do so.

In slowing home markets, companies are building larger, leaner businesses and trying to tap into the pockets of faster growth that remain, sparking national and regional consolidation moves. At the same time, most are working hard to acquire the products, brands and competencies to build footholds in newer growth arenas.

Today, 16 of the largest 20 dairy companies have investments in manufacturing in Asia and/or Latin America; 15 of them have investments in China alone.

Companies are jostling for position

But an increased sense of urgency has entered the game of late, as the market trends accelerate and each new acquisition or merger narrows the remaining field of targets.

These strategic imperatives have generated a wave of M&A activity over the last 18 months, much of it cross border. The majority of the companies in our top-20 have bought other companies or entered joint ventures to strengthen their position during this period. The most significant moves have

included:

– Nestlé’s acquisition of Pfizer’s nutrition business, to buy improved entry into the rapidly growing infant nutrition sector in emerging markets;

– Lactalis’s acquisition of Parmalat, giving them access to several new markets around the world;

– FrieslandCampina’s acquisition of Alaska Milk in the Philippines, expanding their foothold in a fast-growing market;

– Arla’s proposed merger with Milk Link in the UK, and Milch-Union Hocheifel in Germany,consolidating their Northern European footprint;

– Canadian-based Saputo’s acquisition of the US cheese maker DCI to bolster its product portfolio in the US cheese market;

– Müller’s acquisition of Robert Wiseman Dairies in the UK and joint venture with PepsiCo in the US to tap into the expanding US yoghurt category.

Rabobank expects to see companies continue to vigorously pursue merger and acquisition targets in the next 12 months as they jostle to position themselves for growth and profit in a changing market environment.

Redemption risk lower, supply risk higher

One of the main factors behind Fonterra’s decision to introduce Trading Among Farmers (TAF) was to reduce redemption risk.

That’s the risk the company faced in having to buy back shares at a high price when people left the industry or production was much lower than their shareholding entitled to them to.

TAF allows farmers to trade shares among themselves.

But has the reduction of redemption risk been replaced with an increase in the risk of supply?

The share price is higher than most analysts think is warranted and it adds a considerable expense to signing up to Fonterra.

There are other options now and Federated Farmers believes the 7.5 percent shareholding in Synlait taken by FrieslandCampina Investments Holding BV1, a subsidiary of Dutch Dairy Cooperative giant FrieslandCampina, could shake-up the New Zealand dairy industry.

“While the monetary value is modest at around $24.15 million the message it sends is powerful,” says Willy Leferink, Federated Farmers Dairy chairperson.

“As a cooperative, FrieslandCampina’s revenues are similar to Fonterra’s. You could describe the investment in Synlait as a ‘toe-dipping’ exercise but clearly there is an underlying desire to get exposure to New Zealand liquid milk.

“FrieslandCampina easily has the financial means to acquire more of Synlait later if it so chooses. Its cornerstone shareholding is to us more like a beachhead.

“It is also significant that even after the public float, Holland’s FrieslandCampina will have a strong shareholding alongside Bright Dairy and Food Co of China and Mitsui & Co of Japan. The prize is clearly Asia.

“While other investors have not meant much to Kiwi dairy farmers, FrieslandCampina most certainly will.

“Having one of Europe’s largest cooperatives enter our market, albeit through a commercial shareholding, may just spark a discussion over how the domestic cooperatives will respond; Fonterra especially.

“While the focus of the last Dairy Industry Restructuring Act (DIRA) review was on Fonterra’s financial redemption risk, Federated Farmers was concerned at the potential for supplier loss.

“Fonterra’s current model is that all suppliers, save for some, either have three seasons to ‘share-up’ or go onto contract milk. Even with contract milk, you have to agree to share-up with Fonterra within six-years.

“Sharing-up in Fonterra is currently done by buying those bank unfriendly highly priced shares. To us there has to be a change here. A modified “Friends of Fonterra” is how I put it in an opinion editorial.

“What is for certain, things have become very interesting in the dairy industry,” Mr Leferink concluded.

The investment by FrieslandCampina isn’t large but it could give farmers more confidence in Synlait and make supplying the company more attractive.

Rural round-up

Bee keepers pay respects to visionary Claude Stratford:

Federated Farmers’ Bee Industry Group is paying its own respects to bee industry legend, Claude Stratford, who passed away yesterday aged 102.

“The Executive Committee of Federated Farmers Bee Industry Group, extends our sympathies to the family of Comvita co-founder, Claude Stratford,” says Barry Hantz, Federated Farmers Bee Industry Group Executive member.

“In an industry priding itself on its resourcefulness and innovation, Mr Stratford showed incredible foresight to market honey and other bee products as natural health products across a number of applications. . .

AgResearch says it has a role in new water accord:

AgResearch says it’s got a role to play in helping the dairy industry meet the targets it’s set itself in its new water accord.

The accord was launched this week and aims to lessen the sector’s impact on the environment – while allowing it to grow further and remain highly profitable.

Dairy NZ says in the last 10 years New Zealand’s milk supply has increased by 47% – to 1.7 billion kilo of milk solids in 2012. . .

Experiment to limit dairy pollution shows promise:

Agresearch says results of its trial of low cost techniques to limit dairy contaminants leaching into waterways are encouraging.

The state-owned research and development company is part way through a trial of different grazing methods on Telford Farm, near Dunedin.

It says those techniques can significantly reduce the flow of nutrients, faecal microbes and sediment into waterways. . . .

Nominations open for prestigious agribusiness leadership awards:

Nominations are now open for the prestigious annual Rabobank Leadership Award – a key recognition of achievement in, and contribution to, New Zealand and Australia’s food, beverage and agribusiness sectors.

The annual award – now in its eighth year in its current format – acknowledges excellence among the senior leaders of New Zealand and Australia’s agribusiness and agri-related industries. . .

Synlait Milk Limited Welcomes Future Shareholder FrieslandCampina:

Synlait Milk Limited (“Synlait Milk”) is pleased to announce that FrieslandCampina Investments Holding B.V., a subsidiary of Royal FrieslandCampina, will hold approximately 7.5% shareholding in Synlait Milk upon completion of the Initial Public Offering (“IPO”). FrieslandCampina is one of the largest dairy cooperatives in the world and an existing customer of Synlait Milk.

Synlait Milk Chairman Graeme Milne said this investment from FrieslandCampina, as part of the bookbuild to institutional investors and NZX Firms, is an endorsement of Synlait Milk’s operations and growth ambitions. . .

100% New Zealand Bacon & Ham Competition seeks the best of the best:

When it comes to bacon and ham, it simply doesn’t get any better than 100% New Zealand home, crafted by the country’s top butchers and cured meat artisans. 

This year the 100% NZ Bacon & Ham Competition has attracted 200 tasty entries from throughout the country. On 19 July, a 33 strong panel which includes leading chefs, food connoisseurs, and master butchers convenes in Wellington to determine which top bacon and ham maker is the best of the best, using only 100% New Zealand farmed pork. . .

Fonterra 4th in Rabobank’s Global Dairy top 20

Fonterra has dropped a place to fourth by turnover in Rabobank’s Global Dairy Top 20 list – having been overtaken by French company Lactilis.

  The report highlights the ‘who’s who of dairy’ as well as the continuing spate of merger and acquisition activity and tensions between the past and future of the dairy industry.

The report, authored by Rabobank’s Food & Agribusiness Research and Advisory group, shows Nestle and Danone at the top of the list, which remains dominated by dairy companies in OECD countries:  headquarters for 18 of the 20 companies are in the EU, North America, Japan, or New Zealand. 

However, the biggest strides up the rankings this year were made by Chinese giants Yili and Mengniu, riding the wave of domestic market sales growth.  The report says that in fact most of the growth prospects for dairy companies lie beyond OECD boundaries.

The ability of these companies to respond to changing global market dynamics will determine their prospects for survival and success in coming years.  Rabobank expects to see dairy companies continue to vigorously pursue M&A targets in the next 12 months as they jostle to position themselves for growth and profit in a changing market environment.

Rabobank expects demand in traditional markets to face economic and demographic headwinds because of already high consumption, overweight consumers and concerns over price.

However, demand in emerging markets – China, South East Asia, India and Latin America – is expected to increase.

Sixteen of the top 20 companies already have manufacturing investments in Asia or Latin America.

The top 20 companies are: Nestle, Danone, Lactilis, Fonterra, FrieslandCampina, Dairy Farmers of America, Dean Foods, Arla Foods, Kraft Foods, Meiji, Unililver, Saputo, DMK, Sodiaal, Yili, Mengniu, Bongrain, Muller, Schreiber Foods, Land O’Lakes.

Fonterra #1 world processor

The International Farm Comparison Network has judged Fonterra the number one milk processor in the world.

IFCN benchmarked 600 milk processors in more than 70 countries and found that the top 21 processors represent just 21% of world production.

Fonterra, at number 1, processes 2.7% of world production. It was followed by Dairy Farmers of America, Nestlé, Dean Foods and FrieslandCampina.

India produces 114.4 million tonnes of milk making it the top producer by volume. New Zealand is ninth with 17.3 million tonnes.

The report says the dairy crisis is global, affecting 150 million dairy farming families.

The world price for milk reached $US20 (15 Euro) for 100 kilos in 2008 but IFCN found only 10% of the world’s milk can be produced at that price.

It said that price isn’t sustainable unless the market is distorted by policy and that dairy policy will be the main driver for the future milk price level.

I’m not sure what they mean by policy but I suspect it means political interference resulting in subsidies and/or quota.

The NBR has Fonterra’s reaction to the report.