DIRA update disappoints

June 7, 2019

Proposed changes to the Dairy Industry Restructuring Act are a missed opportunity:

. . . Fonterra Chairman, John Monaghan says that while the Government has recommended tweaks to the rules under which Fonterra has to give its farmers’ milk, effectively at cost price to foreign-backed competitors, the playing field is still tipped against New Zealand dairy farmers.

“Our farmer-owned Co-operative wants an industry that promotes investment across regional New Zealand and where profits are kept in New Zealand.  We stand for an industry where New Zealand farmers are paid well for their milk and the unique attributes of our environment are protected and enhanced.

“Given the significant increase in competition within the New Zealand dairy industry, we’re disappointed the Government did not recommend removing the requirement for us to supply our farmers’ milk to large, export-focused businesses altogether.

Farmers now have plenty of choice of processors and other companies should no longer need the safety net of Fonterra milk.

We welcome the Government’s decision to give Fonterra the right to refuse membership to our Co-op where a farm is unlikely to comply with our terms of supply, or where the farm is a new conversion. These changes will support our Co-op’s ability to meet our customers’ demands and continue leading the industry toward a sustainable future for our farmers and the rural communities in which they live and farm.” . . 

Forcing Fonterra to collect milk from anyone, anywhere has encouraged farm conversions in places where, had there been a choice, Fonterra would have turned them down. It has also given the company too little latitude with farmers that don’t meet its standards.

Fonterra Shareholders Council is disappointed with the proposed changes:

Today our farmers will be feeling ignored and frustrated. Despite their efforts to engage in meaningful consultation on changes to DIRA their voice has largely gone unheard as we continue to kick the can down the road with respect to essential change to this important piece of legislation. We do however acknowledge that we are only one of many stakeholders whose interests need to be considered.

This was an opportunity to focus on the wider industry, not just Fonterra, and to optimise value creation for New Zealand from the dairy sector. We are concerned the opportunity to shift DIRA’s purpose to the future and to enable the highest value creation from our milk hasn’t been fully taken up.

The proposed changes to open entry and exit, whilst helpful, do little to address the concerns of our farmers. Recognising the importance of dairy to regional New Zealand, the changes do not go far enough to address the current strong competition for milk and the risk of over-capacity. It’s disappointing that the industry wide solution to enable the removal of open entry, which was developed with Federated Farmers, has not been taken up.

The proposed changes to the milk price regime are of deep concern. Government having the right to nominate a member to the Milk Price Panel is a step too far and gives rise to a direct conflict with the independent oversight of the regime by the Commerce Commission.

MPI also had concerns aobut this:

. . . O’Connor plans to limit Fonterra’s ability to determine a key assumption in setting the base milk price, known as the asset beta.

He will also be able to nominate a member to Fonterra’s milk price panel, although that wasn’t taken to cabinet in the paper and regulatory impact assessments.

MPI did say external appointments to the panel were proposed in submissions but not considered.

“MPI considers that this would create issues of confidentiality and commercial sensitivity, potentially placing Fonterra at a competitive disadvantage,” it said. . . 

Back to the Shareholders Council:

There was strong farmer support for better milk price transparency from other processors and this has not been heard.

Our farmers support the need for a strong domestic market for consumers. However, access to regulated priced milk for all export focused processors should have been removed.

We are disappointed there is no firm position on the expiry of DIRA and when the New Zealand market for milk collection – whether national or regional – will be considered sufficiently competitive. And there is also no transition pathway to de-regulation. . . 

Fonterra’s dominance justified regulation when DIRA was first enacted but there is now sufficient competition from and strength in other companies to begin looking towards eventual deregulation.

Federated Farmers sees useful changes and a missed opportunity in the proposals:

“We’re disappointed that open entry provisions won’t be changed, other than relating to new conversions,” Feds Dairy Industry Group Chairperson Chris Lewis says.

“It’s nearly 20 years since this legislation was passed to ensure that with the formation of Fonterra, competition for farmer milk supply, and dairy product choice for consumers, was preserved.  The market is now mature enough, and competition among a host of processing companies robust enough, for Fonterra to be given some discretion over who it is required to pick up milk from.”

Today’s decisions announced by Agriculture Minister Damien O’Connor will give Fonterra some leeway over accepting milk from land newly converted to dairy, “and that’s good,” Lewis says.  “We await detail on what the definition of a ‘new conversion’ is.

“We’re also pleased that the amended DIRA will give more clarity on when Fonterra can refuse supply when a farmer is well below industry standards relating to the environment, animal welfare, greenhouse gas emissions and the like.

“There are some farmers who have demonstrated their unwillingness to come up to the standard of all the other shareholder/suppliers out there.

“As with other aspects of the government’s announcements, the devil will be in the detail,” Lewis says. . . 

The government had the opportunity to make major changes to the DIRA, recognising changes in farming and the expansion of processing since the company was established in 2001.

Instead it’s just tinkered, leaving Fonterra and its shareholders to carry the costs of supplying competitors, most of which are overseas companies.


Rural round-up

March 6, 2019

Miles Hurrell permanently appointed Fonterra chief executive officer:

Fonterra Co-operative Group (FCG) has announced the permanent appointment of Miles Hurrell as its Chief Executive Officer (CEO), with immediate effect.

Mr Hurrell had been the Co-operative’s interim CEO since August last year.

Fonterra Chairman, John Monaghan says the Co-operative’s Board has been impressed by Mr Hurrell’s leadership and commercial skills as it continued to breathe fresh air into the Co-operative. . . 

Fonterra caught in death valley :

The sale of Tip Top is crucial to Fonterra’s aim of reducing its debt by $800 million before the end of this financial year, dairy industry commentator Peter Fraser believes.

Fast-moving consumer goods companies can command some very high multiples of earnings when being traded.

Fraser is an economist who advised the Ministry of Agriculture during Fonterra’s restructuring attempt a decade ago and has commented on the dairy industry since.  . . 

M. Bovisfoundonthreefarms – Sally Rae:

Bulk milk testing from all dairy farms has confirmed Mycoplasma bovis infection on three farms, the Ministry for Primary Industries’ latest stakeholder update says. All three properties had previously known links to the bacterial cattle disease.

Another 51 farms would be further investigated as part of routine surveillance while testing was yet to be completed from about 50 farms that calved later in the season.

Testing would begin shortly after calving because the bacteria was more likely to be shed during times of stress, such as after calving and the start of lactation, the update said. . . 

Alex woolhandler to represent NZ at champs – Sally Rae:

It’s bonjour France for Alexandra-based woolhandler Pagan Karauria. Karauria (30) will represent New Zealand at the world championships in Le Dorat in July, after gaining selection at the Golden Shears in Masterton on Saturday night.

Her success was even more remarkable given she suffered life-threatening injuries in a vehicle crash in Central Otago 10 and a-half years ago and has battled with the lasting effects since. . . 

Indoor lambing unit is in enviro contest – Joanna Grigg:

Richard Dawkins of The Pyramid has entered his family sheep and cattle business in the 2019 Cawthron Marlborough Environmental Awards and is up against forestry, marine, wine industry, landscape/habitat, community innovation and business innovation entries for the supreme title.

The winners will be named on March 22.

The Pyramid is in contention for the Federated Farmers Award for sheep and beef entries.  . . 

Farm loan delinquencies highest in 9 years as prices slump – Roxana Hegeman:

The nation’s farmers are struggling to pay back loans after years of low crop prices and a backlash from foreign buyers over President Donald Trump’s tariffs, with a key government program showing the highest default rate in at least nine years.

Many agricultural loans come due around Jan. 1, in part to give producers enough time to sell crops and livestock and to give them more flexibility in timing interest payments for tax filing purposes.

“It is beginning to become a serious situation nationwide at least in the grain crops — those that produce corn, soybeans, wheat,” said Allen Featherstone, head of the Department of Agricultural Economics at Kansas State University. . . 

 


Rural round-up

March 4, 2019

EU makes a galling offer – Nigel Stirling:

The European Union is pressing New Zealand to drop the use of some cheese names in free-trade talks but is refusing to open its own dairy markets to increased competition in return.

Negotiators met for the third round of talks in Brussels last week. NZ’s lead negotiator Martin Harvey said the talks had made progress since being launched in July last year and the EU had already tabled an offer on agricultural market access.

“The EU has made us an offer but it is not satisfactory.” . . .

Milk price up but decisions loom – Neal Wallace:

Fonterra decided not to pay an interim dividend because of its debt reduction priorities and steps to improve its operational performance, chairman John Monaghan says.

Fonterra lifted its forecast farmgate milk price range 30c to $6.30-$6.60/kg MS on the back of improved demand from Asia, specifically China, and bad weather slowing production in Australia and Europe.

Countering that, geopolitical pressure in Latin America has made trading conditions difficult in some countries, chief executive Miles Hurrell said. . .

History made as Canterbury woman qualifies for for FMG Young Farmer of the Year final:

A North Canterbury shepherd has made history after qualifying for the prestigious FMG Young Farmer of the Year Grand Final.

Georgie Lindsay, 23, won the fiercely-contested Tasman regional final in Culverden last night, beating seven other contestants.

She’s the first woman from the sprawling region to make it through to the grand final in the contest’s 51-year history. . .

Chance to lower N leaching – Ken Muir:

Southern Dairy Hub business manager Guy Michaels said the key takeaway from last week’s field day at the Hub near Wallacetown was that there is a range opportunities for farmers to save money and reduce nitrate (N) leaching. ”While it is still early days for our research, our monitoring programme being carried out in association with AgResearch is starting to provide a picture of the differences in nitrate leaching in different situations,” he said. . . 

Enterprising family’s team work bears fruit – Sally Brooker:

Usually, it’s the kids who leave home. In the Watt family, it was the parents.

Julie and Justin Watt own Waitaki Orchards, just east of Kurow. Their eight children have become so involved in the business that they have stayed to run different aspects of it.

“Justin and I and the youngest are in Duntroon,” Mrs Watt said when the Oamaru Mail called in last month. “We were the first to leave home.” . . . 

The high school where learning to farm is a graduation requirement – Mary Ann Lieser:

A group of teens gathers quietly in the predawn darkness. Dressed in warm clothing, they meet before breakfast to help capture and pack broiler chickens to be taken to a slaughterhouse. They fed, watered, and watched the birds grow; now they prepare them for their final trip. Eventually, the birds will return as meat and be cooked for the teens to eat.

High school students at Olney Friends School, located on 350 acres near Barnesville, Ohio, witness the cycle of birth and death time and again during their four years on campus. Founded in 1837 to serve the children of Quaker families, Olney has always had a farm program and students have been involved in its operation to varying degrees. . .

 


Former Fonterra chair John Wilson has died

January 28, 2019

Fonterra chair John Monaghan has announced the death of former chair, John Wilson:

. . . In July last year, John Wilson announced his intention to step down from the role of Chairman to focus on his health. He then retired from the Co-operative’s Board at its Annual Meeting last November.

In a note to the Co-operative’s farmer-owners earlier today, Fonterra Chairman John Monaghan said Wilson was a man whose dedication and commitment to the Co-operative ran deep.

We owe John and his family a debt of gratitude for all the time, energy and sheer hard graft he gave us as a farmer-owner, inaugural Chairman of the Fonterra Shareholder’s Council on merger, as a Farmer Elected Director from 2003, and as our Chairman from 2012.

John always brought dedication, commitment, and deep dairy knowledge to each of the representation and governance roles in which he served. On behalf of his fellow farmers he was the ultimate advocate for what we stand for.

We have lost a friend, colleague, leader and champion for our industry much too soon. Our thoughts and deep gratitude for all that he contributed go to his family and friends,” said Mr Monaghan.


Give shareholders first option on Tip Top

December 7, 2018

Fonterra is considering selling its Tip Top ice cream brand:

Chairman John Monaghan said it was looking at its ongoing ownership of Tip Top and had appointed FNZC as an external advisor to consider a range of options.

“We want to see Tip Top remain a New Zealand based business and this is being factored into our options,” Monaghan said.

“While performing well, Tip Top is our only ice cream business and has reached maturity as an investment for us. To take it to its next phase successfully will require a level of investment beyond what we are willing to make.” . . 

Fonterra shareholder Matthew Herbert has started a petition opposing the sale:

Problem
Fonterra is looking at selling off it’s Tip Top ice cream brand.
Kiwi’s eat more ice cream per person than any other country on earth.
Tip Top ice cream is one of the biggest links between fresh New Zealand milk from Fonterra farmers, and people who live in our cities.

Solution
Sign the petition and help farmers save Tip Top from the chopping block!

Lets tell Fonterra to hold onto Tip Top and keep our delicious ice cream going from farm to freezer.
#SaveTipTop

 

I’m not opposed to the idea of selling the company.

Fonterra needs to reduce debt. If it can’t make the investment needed to take the company further then it is better to sell it to others who can, and sell it at the best price it can get.

But why not give Fonterra shareholders first option to buy Tip Top?


Fonterra’s forecast payout down

December 6, 2018

Fonterra has revised its forecast payout for the 2018/19 season from $6.25-$6.50 per kgMS to $6.00-$6.30 per kgMS.

It’s also reported its first quarter performance:

  • Forecast Farmgate Milk Price range: $6.00 – $6.30 per kgMS
  • Forecast earnings per share range: 25-35 cents
  • Forecast New Zealand milk collections: 1,550 million kgMS, up 3%
  • Sales volumes: 3.6 billion LME, down 6%
  • Revenue: $3.8 billion, down 4%
  • Gross margin: $646 million, down $14 million
  • Gross margin percentage: 17%, up from 16.6%
  • Operating expenses: $656 million, up 3%
  • Capital expenditure: $188 million, up $46 million

Fonterra Chairman John Monaghan says the revision in the forecast Farmgate Milk Price range is due to the global milk supply remaining stronger relative to demand, which has driven a downward trend on the GlobalDairyTrade (GDT) index since May.

“Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up one per cent for the year,” says Mr Monaghan.

“Here in New Zealand, we are maintaining our forecast collections at 1,550 million kgMS. NIWA is saying its likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production.

“Demand from China and Asia remains strong. However, we are seeing geopolitical disruption impacting demand from countries that traditionally buy a lot of fat products from us.

“Today’s forecast range assumes dairy prices will firm across the balance of the season. This is consistent with the views of other market commentators.

“There are still a number of unknowns in the global demand and supply picture and we recommend farmers budget with ongoing caution. Fonterra’s Advance Rate has been set off a milk price of $6.15 per kgMS.” . .

The drop in the forecast price isn’t a surprise.

The small lift in the GlobalDairyTrade price index this week, follows months of price falls.

While the drop is neither unexpected nor welcome, most farmers and shareholders would be reasonably relaxed about a payout of $6 or more.

The supply of milk has been up across the country but successive days of heavy rain over the last few weeks will have had an impact. Few herds will have been able to maintain peak supply for long and milk production will be dropping faster than budgeted for.

 

 


Rural round-up

November 15, 2018

Wool cells used for new material – Sally Rae:

Deconstruction of coarse wool fibre to create new materials has been described as a ‘‘major breakthrough’’.

Researchers at Lincoln Agritech Ltd have broken down coarse wool — which  comprises about 75% of New Zealand’s wool clip — into its cellular components, creating new materials that are not wool but contain wool attributes.

The work was part of a $21 million seven-year research programme into new uses for coarse wool, co-funded by the Wool Research Organisation of New Zealand (WRONZ) and the Ministry for Business, Innovation and Employment. . . 

Fonterra must learn to be driven by profit not volume – Point of Order:

Fonterra chairman John Monaghan sought to cheer up the co-op’s farmer-shareholders by telling them at what was reported to be a “packed” annual meeting that “For a time this year, NZ farmers were paid this highest milk prices in the world.”

He insisted there has been a structural change in the co-op’s milk prices since Fonterra was formed. . . 

Using collaborative science to unlock our potential:

Enhancing the production and productivity of New Zealand’s primary sector, while maintaining and improving the quality of the country’s land and water for future generations. That’s the mission of the ‘Our Land and Water’ National Science Challenge.

National Science Challenges emerged from The Great New Zealand Science Project, which in 2012 invited New Zealanders to talk about the biggest science related issues for them.

The project resulted in 11 Challenges, set up by the Ministry of Business, Innovation and Employment in early 2016.

They are designed to ensure that science investment focuses on areas that matter most to New Zealanders. . .

Luxury cashmere produced here in NZ – Sally Rae:

New Zealand’s fledgling cashmere industry, which has its roots in South Otago, has reached a significant milestone, as Sally Rae reports.

Production of the first pilot New Zealand-grown cashmere garments is being heralded as a milestone in the country’s fledgling cashmere industry.

In January, New Zealand Cashmere — formed by Clinton farmers David and Robyn Shaw — announced a partnership with Christchurch-based sustainable lifestyle fashion brand Untouched World and Wellington-based Woolyarns to commercialise a market for New Zealand-grown cashmere.

This week, Untouched World is launching a  retail store in Wanaka and those first garments will be on display. . . 

Dairy is not evil – Sudesh Kissun:

Irrigation New Zealand chief executive Andrew Curtis believes there will always be a place for dairy.

“I keep saying it: it’s not about too many cows, but how the land is managed,” he told Rural News. Curtis, who is leaving the helm of Irrigation NZ in March, says he knows some “very, very good” dairy farmers with good environmental footprints and some “very, very bad” dairy farmers with horrible footprints – and the same with good and bad cropping farmers.

“So, let’s stop going on about the land use thing because it’s all about land management practices,” says. . . 

Mycoplasma communication team needs to play with straight bat – Keith Woodford:

MPI is currently reporting a positive story about Mycoplasma bovis eradication. There is indeed good news to report. But in cricket terminology, the communication team needs to play with a straight bat.

I found myself to be a topic in MPI’s latest announcements. According to an anonymous MPI spokeswoman, I have made claims questioning the time of arrival that I have declined to back up, despite multiple requests. That is a falsehood. The MPI bat is not straight. I will return to that topic further down, but first the big picture.

Over the last six weeks, there have been four new infected farms detected and three new trending-positive (RP) farms. Some of these are large dairy farms and they have led to a new string of traces. Accordingly, active trace farms have increased from 208 to 245. There are also many hundreds of surveillance farms. . .

Waikato Innovation Park to build new spray dryer for growing sheep milk industry :

Plans are underway for a new spray dryer at Waikato Innovation Park to cater for the burgeoning sheep milk industry.

The $50 million dryer will sit alongside the Park’s existing dryer, but will have 2.4 times its capacity. It will be built by Tetra Pak with construction expected to start this month.

It is due to be on line by November 2019 and once completed, is expected to more than double employment at the plant from 17 to 35 staff. . . 

Novel plumbing for Massey research farm:

Massey University’s sheep and beef research farm is to begin nutrient leaching research using underground water and nutrient collection.

Keebles Farm (287ha), near Massey’s Manawatū campus, now has water collection under each paddock to allow all water to be collected and studied.

Deputy head of the School of Agriculture and Environment Professor Paul Kenyon says the farm will be the first to use a collection system of this type for sheep and beef research in New Zealand. . . 

A sensible decision to support safe crop protection options – Tim Burrack:

Their names almost make them sound like the villains in an old John Wayne movie: Palmer Amaranth, Tall Waterhemp, and Giant Ragweed.  

In reality, they’re among the worst invaders in a farmer’s soybean fields—prolific weeds that rob our food crops of moisture and nutrients, depress our yields, and resist many forms of herbicide. 

To fight them, we need the best technology available—and on October 31, the Environmental Protection Agency tossed us a lifeline.  . . 


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