Com Com approve’s Fonterra Studholme plant purchase


The Commerce Commission has approved Fonterra’s purchase of the Studholme milk processing plant formerly owned by New Zealand Dairies.

Comparing the acquisition by Fonterra to the scenario where another bidder would acquire NZDL’s assets, the Commission is satisfied that the acquisition would not be likely to result in a substantial lessening of competition. The Commission also considers that Fonterra’s cooperative ownership structure and the regulatory environment in which it operates, together with its national raw milk pricing strategy, removes Fonterra’s incentive and ability to depress the prices it pays farmers for raw milk in the South Canterbury and North Otago regions,” said Commerce Commission Chair Dr Mark Berry.

Dr Berry added that given that the Studholme factory produces milk products for export rather than domestic consumption, and would likely continue to do so whoever acquires it, the Commission has not had to consider downstream markets in New Zealand for dairy products such as butter and cheese in this instance.

In addition to the clearance decision, the Commission also decided that it was unlikely that the Operational Agreement between the Receivers and Fonterra, which provided for the continued operation of the Studholme plant for the 2012/2013 milking season, resulted in a substantial lessening of competition.

Fonterra has, not surprisingly, welcomed the decision:

The Studholme site becomes the Co-op’s 27th processing factory and the 11th in the South Island accepting about 800,000 litres of milk a day from former NZDL suppliers and Fonterra shareholders.

Fonterra CEO Theo Spierings said the Commerce Commission’s decision provided certainty for NZDL’s suppliers and would be a welcome addition to the Co-op’s processing capacity.

“This investment in the Studholme plant underpins our commitment to the dairy industry in Canterbury, one of the fastest growing dairy regions in New Zealand. We’re pleased we have been able to offer certainty to the former suppliers of NZDL and staff at the factory.

“The Studholme site also complements our new Darfield plant operating for the first time this season.”

“We’ve been operating the Studholme plant for the receivers over the past couple of months to ensure supplying farmers could sell their milk from the start of this season,” he said.

“We started collecting milk from NZDL suppliers at the beginning of August and processed it at other sites and fired up the Studholme plant on August 14. We’re now processing more than 800,000 litres per day of milk into whole milk powder for export.”

This is very good news for the suppliers and workers at the plant who have been in limbo since NZ dairies went into receivership.

It is also good news for wider South Canterbury and North Otago both of which would have suffered economically and socially  had the factory closed.

Phantom vs Fonterra


A phantom bidder which claims to have offered a better deal for New Zealand Dairies’ South Canterbury milk powder plant than Fonterra is urging the Commerce Commission to investigate the sale process.

In a confidential submission on Fonterra’s application for clearance to buy NZ Dairies, the rival called on the Commerce Commission to “investigate the fairness of the sale process” which it says put “significant pressure” on suppliers to accept the Fonterra proposal. The unnamed bidder claimed to have trumped Fonterra’s undisclosed winning bid.

“The receivers may have elected for other reasons not to pursue the offer, but the perception that the Fonterra offer was the best is not correct, and we request that this be corrected,” the submission said.

“The Fonterra offer was clearly not the best offer on the table, but the receiver chose not to pursue other options and yet Fonterra claim not to have pursued the acquisition. This process should be investigated,” it said.  . .

The unnamed rival was told its bid was unsuccessful as it needed Overseas Investment Office approval, the submission said.

The submission referred to an international equity investor whose chief executive and main shareholding are New Zealanders who are “extremely keen and interested to invest in NZ.”

The bidding company was “formed to invest in and operate dairy farming and dairy processing assets.”

The investors have primarily been in energy and recently showed an interest in pastoral farming and dairy production, the submission said.

The bidder “has for the past three years been researching the NZ dairy industry and is very interested to invest,” it said.

Fonterra’s offer was welcomed by most of NZ Dairies’ suppliers as a lifeline, not least because its offer included payment for milk supplied last season for which farmers hadn’t received payment.

Fonterra is running the plant on behalf of the receivers now. Even those suppliers who weren’t entirely enthusiastic about joining the co-operative will almost certainly prefer the devil they know than a phantom which would have to wend its way through the Overseas Investment Office approval process with no guarantee of success.

Rural round-up


1080 doesn’t contaminate waterways new study shows:

New research by NIWA scientists shows 1080 poison does not contaminate waterways.

1080 is used throughout New Zealand to control animal pests – mainly possums – which spread the livestock disease bovine tuberculosis.

Over the past three months, scientists have placed large amounts of 1080 in a trial catchment on the West Coast and then simulated rainfall in the area.

The aim is to understand how 1080 – a natural toxin – moves through or across soil into waterways and if the run-off degrades the quality of water.

Dr Alastair Suren is the freshwater ecologist who led the research and says the study found that during rainfall 1080 diluted to the point where it became nearly undetectable. . .

Rabobank runs masterclass – Hugh Stringleman:

Some “scary numbers” on world food security were addressed by 50 participants, including six New Zealanders, in the inaugural Global Masterclass held by Rabobank in the home country, Netherlands.

Speakers from the United Nations and giant agribusinesses such as Unilever and Cargill impressed upon North Island sheep, beef and deer farmer William Oliver the need for greater efficiency in farming with labour, energy and capital.

“I came home to see the opportunity in everything and bring more passion and inspiration to my farming,” Oliver said.

The theme of the vent was to promote rural entrepreneurship to fill the world’s food needs . .

My farmer was one of the six New Zealanders at the Masterclass. You can read more about it here and here.

Pear investment coming up rosy – Peter Watson:

In more than 30 years growing pipfruit, Bruce Fraser hasn’t seen a pear with such promise.

Shaped more like an apple and bright red, PremP109 has been stirring up a storm since being released in tiny amounts last year.

Dubbed a “papple” in Britain, it has been selling at Marks and Spencer stores for an eyewatering 1GBP (NZ$2.10) a piece and returning growers back here more than $100 an 18kg carton, a staggering sum at a time of hardship in the industry. . .

Fontera eyes up Studholme plant – Andrea Fox:

The small size of New Zealand Dairy’s Studholme plant means it is well-suited for use in short and specialised manufacturing runs, Fonterra says in an application eyeing up the factory.

Fonterra has a deal to buy the dairy-processing assets of New Zealand Dairies, which is in receivership. But while awaiting a Commerce Commission decision, the dairy giant wants to buy the milk of the failed company’s contracted farmers and operate the plant.

Exporter New Zealand Dairies was founded six years ago to build a wholemilk powder processing plan on 55ha at Studholme. The plant was commissioned in 2007 at a cost of $108m. . .

Winemaker introduces smaller bottles:

Mission Estate has been commended by anti-alcohol campaigners for introducing New Zealand’s first 500ml bottle of wine.

The Hawke’s Bay winery, the nation’s oldest, is now selling sauvignon blanc and syrah in the smaller bottles in a bid to make wine more attractive to modern lifestyles. The standard bottle of wine is 750ml, or 7.7 standard drinks.

Mission chief executive Peter Holley and winemaker Paul Mooney read research that showed New Zealanders were becoming older, increasingly urban and living in smaller family units. . .

Sanford sells virus hit Northland oyster farms  –

Fishing company Sanford has sold its Pacific oyster farms in Northland to Aotearoa Fisheries.

Sanford closed its Kaeo processing plant in December because of a virus that killed many of the juvenile oysters and the likely reduced oyster harvest.

Despite having confidence that there was potential to breed new oysters that have some resilience to this virus, it had decided that it made more sense for it to concentrate on its expanded Greenshell mussel business, Sandford said. . .

“Meating” of minds on advancing sector – Shaan Te Kani:

INDUSTRY ORGANISATIONS and commercial companies will work much more closely together in future, says Beef + Lamb NZ chairman Mike Petersen.

“There has been a bit of discussion certainly since Keith Cooper’s resignation from our board around election time – about the value of industry organisations,” Petersen said at the Federated Farmers conference in Auckland.

“Our view is we are a farmers’ organisation…. It should be up to the farmers to decide whether they want to invest in research programmes, extension work, economic anaylysis, skills and trade programme or market access. . .

Growers fear limits to their water take

SETTING limits on irrigation use in the Poverty Bay Flats was one of the main concerns raised by farmers and growers at the Fresh Water Advisory Group community meeting yesterday.

More than 50 people attended the meeting at Bushmere Arms, which discussed the draft freshwater management plan with Waipaoa users.

Advisory group representatives delivered the plan’s vision, which is to ensure the long-term sustainability of freshwater resources as well as considering economic and social activities. . .

So You Think (NZ) Reitred to stud:

The curtains have been pulled on the racing career of one of New Zealand’s most successful racehorses seen in recent times with the New Zealand bred Karaka graduate So You Think (NZ)officially retired to stud.

Announced by Coolmore yesterday, So You Think (High Chaparral x Triassic) has subsequently been withdrawn from Sunday morning’s Group 1 Eclipse Stakes where he was odds on to claim his 11th Group 1 race.

The son of High Chaparral was found to be lame after exercising yesterday morning in Ireland and it appears he has pulled a muscle in his hind quarter which precludes him from running in the Eclipse Stakes. So You Think will enter quarantine this week as originally planned before making his trip back to Australia to commence stud duties. . .

Potatoes NZ welcomes step towards fresh potato exports:

Potatoes New Zealand has welcomed an Australian Government draft report which is expected to open the door to the export of fresh potatoes for processing from New Zealand to Australia.

The Australian Department of Agriculture, Fisheries and Forestry (DAFF) draft report proposes that the importation of fresh potatoes for processing into Australia from New Zealand be permitted subject to import conditions.

Potatoes New Zealand Chairman Stuart Wright said that the news was very encouraging for the New Zealand potato industry and it was hoped the Australian market could be open to New Zealand for the 2012-13 season. . .

Fonterra to buy NZ Dairies’ assets


Fonterra has conditional agreement to buy NZ Dairies’ assets in South Canterbury.

The acquisition, which is subject to Commerce Commission clearance, would result in NZDL’s existing farmer suppliers being paid in full by the receivers and being able to have their milk processed and paid for from the start of the new dairy season which commences in a few weeks.

Suppliers are owed tens of millions of dollars in total, individuals will be owed hundreds of thousands. If Fonterra’s offer gets Commerce Commission approval and enables receivers to pay then in full that will be a lifeline for not just them but their creditors too.

The Russian-owned dairy factory was placed into receivership on 17 May 2012. The receivers, Colin Gower, Stephen Tubbs and Brian Mayo-Smith of BDO Chartered Accountants, called for bids to buy the business and assets of NZDL soon after.

Fonterra CEO Theo Spierings said the acquisition ensures that the Studholme plant continues to operate and its farm suppliers have certainty that they will be able to sell their milk on a commercial basis from the start of next season.

“The Studholme plant is processing around 150 million litres of milk a year into milk powders for export,” said Mr Spierings.

“It will complement our new Darfield plant which is due to start taking milk in August.

“Our Strategy Refresh has clearly identified the importance of growing milk volumes and optimising our New Zealand manufacturing operations. This transaction helps deliver on that priority.”

As part of the agreement, NZDL’s existing suppliers have been offered the opportunity to supply Fonterra on contracts, which will enable them to become Fonterra fully share backed after the 2012/2013 season and require them to be shareholders within six years.

Fonterra plans to operate the Studholme plant up until the end of the 2012/2013 season pending a decision by the Commerce Commission on Fonterra’s clearance application.

“This means that we are able to collect and process farmers’ milk from the start of the new season, avoiding the prospect of them having to spill milk,” said Mr Spierings.

“The solution we’ve developed with the receivers will mean that suppliers who continue to supply NZDL have a tanker coming up their driveway to take their milk and ensures they still have an income.

“It also means we are able to provide for continued employment to many of NZDL’s staff during this period.”

Many  of NZ Dairies’ suppliers would have been attracted to the company by not needing to buy shares. Fonterra’s offer to take their milk on contract with time to acquire shares gives them breathing space.

If the Commerce Commission takes into account the benefits for suppliers, staff and the wider community there should be no problem with approving the purchase.

It will have to take into account other processors and the presence of a Synlait plant in Canterbury might help.

Who owes how much to whom?


Dairy NZ suppliers were told on Friday that they’d have to wait about a month for the $30 million they’re owed.

That is a lot of money for the company that is in receivership and it won’t be all that they owe.

It’s also a lot of money for suppliers who will have bills to pay.

Synlait is showing some interest in the dairy factory but any new owner would be loath to take on the liability for unsecured creditors, among whom are the suppliers.

There is understandable concern about how much of the money they’re owed the suppliers will get and it’s not just farm owners.

Share milkers are also owed money and there is uncertainty about whether that is the company’s responsibility or the farm owners’.

Ian Moore, a spokesman for the farmers who supply milk to NZ Dairies, admitted yesterday he was concerned about the immediate prospects. . .

. . . His main concern was for sharemilkers, who typically own only the cows and share in the milk cheque, who have no equity to fall back on.

Mr Moore has already been in contact with rural bankers from the area who he hoped would turn up to yesterday’s meeting and support the affected farmers, to prevent “anyone from going to the wall” if payments are delayed or do not come through.

Then there are the people who supply and service the dairy farms who will be owed money by the suppliers who are owed money by the company.

One attraction of companies like NZ Dairies is that suppliers don’t have to buy shares as they do with Fonterra. That is of most benefit to those with newer conversions who will be in a weaker position to withstand a delay or loss of payments.

Most if not all suppliers are from South Canterbury and North Otago where the receivership will have an impact on the districts’ economies.

Interested buyers


Receivers for  NZ Dairies are in talks with interested buyers.


Moscow-based investment bank VTB Capital appointed Colin Gower, Stephen Tubbs and Brian Mayo Smith of BDO Chartered Accountants as receivers for NZ Dairies yesterday. They intend to put the group, which includes milk processing facilities in Studholme, up for sale, and have called a meeting with farmer suppliers keep them up to date.

“There are already advanced discussions in place with a number of interested parties regarding the purchase of the business,” the receiver said in a statement.

There are some very anxious suppliers waiting to find out how much they will be paid for the milk they’ve sent to the company in the last month.

They are owed make-up payments for the rest of the season too as suppliers get only partial payments during the season.

The problem appears to be a lack of equity after the parent company went bankrupt.

Where there’s milk . . .


The grapevine reckoned that Don Brash and Keith Turner (former National leader and CE of Meridian Energy respectively) had been showing interest in a dairy farm that’s for sale in our neighbourhood.

The farm’s still on the market but Rural News reports  that the two men are directors of New Zealand Milk which is planning to build a factory to produce skim and whole milk powder near Glenavy, just north of the Waitaki river.

If it goes ahead, South Canterbury suppliers will be spoiled for choice. New Zealand Dairies has a factory at Studholme, near Waimate, and Fonterra has a factory at Clandeboye, north of Timaru. 

In spite of the uncertain outlook for commodities in international markets, this indicates that there’s still plenty of people who believe that where there’s milk there’s money to be made.

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