Rural round-up

Why is New Zealand’s retail milk so expensive? – Keith Woodford:

Visitors to New Zealand often ask me why our supermarket milk is so expensive compared to in their own countries. I tell them the answer is simple. First, we have little competition, with only two milk major processors (Fonterra and Goodman Fielder) and two major supermarket chains (Foodstuffs and Progressive). Also, unlike most other countries, the Government in New Zealand does tax food.   Both answers are typically received with surprise.

I am sure it will also come as a surprise to many New Zealanders to hear they pay more for their milk than the British, the Australians, the Americans and even the Canadians. So let’s do some comparisons. . .

Smoke and mirrors of business as usual? – Allan Barber:

This season shows many of the normal characteristics of the red meat sector, but it’s getting harder than ever to unravel the complexities of an industry which epitomises Winston Churchill’s 1939 quip about Russia – a riddle wrapped in a mystery inside an enigma.

In conversation with several senior industry executives, it has been possible to establish for certain only three things: first, this season is a bit easier than last and quite a lot better than two years ago, second, the trend to dairy support away from sheep and beef has gained momentum, and lastly China is extremely helpful for exports of both species.

There are conflicting views about other current issues and events. Beef is either tougher or easier than sheepmeat depending on the region or point of view, capacity must come out, but whose capacity again depends on the perspective taken, and, while some are closer than others to see the possibility, nobody is willing to predict a disaster. . . .

From farm to the boardroom – Annette Scott:

Dawn Sangster is a grassroots farmer, an Alliance Group director and is committed to making a positive contribution to the red-meat sector. She talked to Annette Scott about her fascinating journey in the rural sector.

Maniototo farmer Dawn Sangster grew up on the family farm in Paerau, Central Otago.

She attended Waitaki Girls High before graduating from Lincoln University with a Bachelor of Agricultural Commerce degree in farm management. . .

Call for organic producers to unite – Alan Williams:

Southland farmer Craig Dowden reckons organic lamb producers can do better by teaming up and demanding a better price.

He wants them to decide on a fair minimum price and tell their processors that is a bottom line for supply.

Existing prices, providing typically a 20% premium over conventionally farmed lambs, weren’t enough, Dowden said.

The premium was needed to allow for reduced stocking rates, slower growth rates, and some stock-health issues involved in running a farm without some chemical treatments, he said. . .

 

TAF ‘a blueprint for the world’ – Tim Fuulton:

Fonterra’s Trading Among Farmers (TAF) scheme is being copied in Australia and the rest of the world is likely to follow, NZX head of capital markets Aaron Jenkins says.

Jenkins joined NZX last year from a role as Fonterra’s TAF general manager.

It is 16 months since the share-trade mechanism launched in a clamour of publicity.

Australian dairy co-operative Murray Goulburn’s proposed share-trade mechanism was virtually identical to Fonterra’s TAF, except the Australians wanted to raise money externally, Jenkins told a recent function hosted by Christchurch law firm Tavendale and Partners. . .

 

Human health implications of A1 versus A2 beta-casein: theory and current evidence – Keith Woodford:

The health implications of A1 beta–casein relative to A2 beta-casein are controversial. At times the scientific debate can become clouded by the reality that milk is a commercial product. Conversion of all herds so as to replace A1 beta-casein with A2 beta-casein over one to two cow generations (4 – 12 years) is technically straight forward. Accordingly, the beta-casein issue can be presented as either a threat to, or an opportunity for, the mainstream industry, with elements of each perspective being valid.

The Key Science.

• All bovine beta-casein was originally of the A2 type. A1 beta-casein is now produced by a considerable proportion of cows that have European bloodlines. In contrast, goats, sheep, buffalo, camels and humans produce beta-casein of the A2 type. . .

 

Fonterra’s supply offer popular

Fonterra’s latest supply offer to shareholders has been very popular with farmers.

Fonterra Co-operative Group today confirmed that farmer shareholders offered to sell 75,223,742 economic rights of Wet Shares in this month’s Supply Offer, amounting to a total value of $595,772,036.64.

The high level of demand means the Offer will be scaled.  Fonterra will buy 79.7284 per cent of the economic rights each farmer shareholder offered to sell.

Chairman John Wilson said about 20 per cent of Fonterra’s farmers took advantage of the opportunity to release some of the value of their shareholding, providing more flexibility for their businesses.

“A significant number of farmer shareholders have thought through the potential benefits of using the additional flexibility provided by the changes made to our capital structure last year.

“Some have indicated they will use the Offer proceeds to fund further growth of their farming businesses, while others are saying they will relieve some of the cash flow pressure after this year’s drought,” said Mr Wilson.

The Supply Offer will not increase the current size of the Fonterra Shareholders’ Fund.  Fonterra is purchasing the Units that arise as a result of this Supply Offer and will then redeem them for Fonterra Shares, which means that the Offer will not affect the total number of Units on issue.

Shareholders Council chair Ian Brown says the take-up shows farmers are beginning to take advantage of the flexibility Trading Among Farmers (TAF) offers them.

“The first Supply Offer saw Farmers exercise some understandable caution but with growing confidence in the new system Farmers are now ready to use TAF as it was intended.

“The solid level of demand from Shareholders to release some of the economic value of their shares shows they are using TAF to their benefit.

“Farmers are taking advantage of the greater flexibility it offers them in making decisions that impact the day-to-day running of their business.

“This also strengthens our Co-operative as Fonterra is now able to make better use of our capital rather than, as the recent drought would have compelled it to, distribute it as Farmers redeemed their shares.”

TAF was started to offer protection for the company from redemption risk – too many farmers selling shares when the price was high.

The new system was designed to give farmers more flexibility and the company more security and it seems to be working as intended.

Rural round-up

Senior Aussie PGG Wrigthson exec to head Landcorp:

 (BusinessDesk) – PGG Wrightson’s Steve Carden, who heads up its Australian seeds unit, will leave the country’s biggest rural supplies firm to take up the reins at New Zealand government-owned Landcorp Farming in July.

The Wrightson general manager will take up the chief executive role being left vacant by long-standing Landcorp boss Chris Kelly, the company said in a statement.

Carden has been with Wrightson since 2008, and responsible for the Australian seeds business since 2010, overseeing the acquisition and integration of a number of businesses while confronting some challenging climatic and market conditions. . .

Collaborative water management delivers water solutions in North Canterbury – David Eder and Ian Whitehouse:

In July 2013 the Hurunui-Waiau Zone Committee will notch up three years of work. It was set up as part of the Canterbury Water Management Strategy – a collaborative process for finding local solutions to water issues within an environmentally sustainable framework.

In July 2010 the committee’s daunting task was to sort out water storage in the Hurunui catchment and set water quality limits.

We held dozens of committee meetings, public meetings involving more than 300 people, and received written feedback from more than 120 people before finalising our zone implementation programme of recommendations.

Working collaboratively empowered us to reach consensus decisions on local water issues that are acceptable to a wide range of people. The ZIP now guides local government work programmes and policy to achieve the agreed goals of the Strategy. . .

 

TAF scheme could benefit independent processors:

Massey University’s professor of agribusiness thinks Fonterra’s Trading Among Farmers (TAF) system will play into the hands of independent dairy processors, including Chinese companies, setting up new milk powder plants in New Zealand.

Two Chinese companies have been cleared by the Overseas Investment Office to establish plants in South Canterbury and northern Waikato processing milk for infant formulas.

Hamish Gow does not think they will have a problem finding a supply of milk from local farmers. . .

South Canterbury farmer welcomes Chinese investment:

A dairy farmer who sold part of his land for a new Chinese owned milk powder factory to be built in South Canterbury says it will be a huge economic boost for the region.

Aad van Leeuwen had a 12.5% shareholding in the Oceania Dairy company – which has just been bought out by the Inner Mongolia Yili Industrial Group, after it got Overseas Investment Office approval. . .

Westland Milk Products’ new nutritional plant enters commercial production:

Westland Milk Products, New Zealand’s second largest dairy cooperative, has made a bold strategic step into the international high-value paediatric nutrition market with the commissioning of a state-of-the-art nutritionals plant at Hokitika.

The new multi-million dollar plant commenced commercial production in February and already has committed customers, taking Westland from being a well-respected dairy ingredient supplier to an exciting new entrant in the infant nutrition sector. . .

Happy, Profitable, Sustainable Dairy Business Wins Top Prize in Waikato Ballance Farm Environment Awards:

Walton farmers Grant Wills and Karen Preston have scooped a string of awards in the 2013 Waikato Ballance Farm Environment Awards, including the highly coveted Supreme title.

Judges said decision making on the couple’s 244ha (215ha effective) dairy farm ‘Tremeer’ focuses on profitability while caring for the people, the cows and the environment.

Grant and Karen were announced winners of the Supreme Award at a Ballance Farm Environment Awards (BFEA) ceremony on April 3. They also collected the Ballance Agri-Nutrients – Nutrient Management Award, the LIC Dairy Farm Award, the Hill Laboratories Harvest Award, the Massey University Discovery Award and the Meridian Energy Excellence Award. . .

Adding a hole lot of value to a piece of pine – Peter Kerr:

We all know that we’d prefer to export more than just a log of pine to overseas markets.

At the same time, the NZ Inc desire to add value to our raw commodities such as trees is almost tiresome through over-use.

So, it is a pleasure to be able to highlight a company and person doing something different and in their case, making a better pine pole. 

Now TTT Products (and no, I’d never heard of them either until going through a recent exercise to maximise the return from a 20 year old four hectare block of pines that I’m involved with) isn’t a small firm. Its North Island headquarters at Tuakau covers 20ha, specialising in creating pine poles of many different sorts.

Search begins for the 2013 Young Horticulturist of the Year:

The future of New Zealand’s horticulture industry could easily be in the hands of the finalists in the 2013 Young Horticulturist of the Year. Professor Jacqueline Rowarth says that the life skills that the contestants learn through the competition sets them on the path to future leadership.

This statement launches the search for the 2013 Young Horticulturist of the Year, and for up to 7 finalists to line up in the grand final in November.

Finalists (30 years and under) compete for a prize pool of over $40,000 that includes a $7,500 travel and accommodation package, and a $5,500 Massey University study scholarship and travel. While the prizes are tempting, it is the development opportunities that are the real reward for finalists in the Young Horticulturist of the Year competition. . .

Green Meadows Beef Continues To Grow Demand. Export- Quality, 100% Grass-Fed Beef Now Available In Wellington & New Plymouth:

Green Meadows Beef, 100% grass-fed, free-range, export–quality Angus beef from South Taranaki, has responded to increased demand for their beef by making it available in two North Island food stores. Moore Wilson in Wellington and Fresha in New Plymouth are now both stocking a wide variety of Green Meadows Beef, from Scotch Fillet and Rump Steaks to Premium Beef Mince.

Moore Wilson will publicly launch Green Meadows Beef at an in-store tasting event on Sunday, 7 April from 10:00am to 2:00pm. Wellington chef, Liam Brash, who has worked at The Savoy in London, will be cooking up a variety of gourmet bite-sized beef treats for the public to try. Green Meadows Beef Directors, Michael and Nick Carey, will be on hand to answer questions about the different cuts of beef and the Green Meadows Beef way of farming. . .

Rural round-up

Groser welcomes new OECD-WTO report on international trade:

Trade Minister Tim Groser has welcomed the OECD-WTO’s estimates of “Trade in Value-Added” at the launch of the new database in Paris.

“This new data estimates trade in value-added terms, which helps convey the interdependencies of global value chains and reveal who ultimately benefits from trade,” Mr Groser says.

“Engaging internationally is crucial to all countries’ future prosperity. New Zealand is especially well connected to global value chains in the agriculture and food sectors.”

According to OECD estimates, 81 percent of New Zealand exports’ value is created domestically. This is higher than the OECD average of 72 percent, reflecting both our geographic distance and the importance of agricultural products to our exports. . .

Fonterra trading scheme adds new dynamic for farms –

The introduction of Fonterra’s Trading Among Farmers (TAF) share trading scheme has added a new dynamic to the market for dairy farms, and has potential to put downward pressure on farm values, Real Estate Institute of NZ rural market spokesman Brian Peacocke said.

The introduction TAF last November has been a spectacular success and probably far greater than Fonterra could ever have have anticipated, according to market participants.

The units, which do not carry voting rights and which can be owned by the public, last traded at $7.45 – a 35.5 per cent premium their $5.50 issue price. The success of the units has rubbed off on the value of Fonterra shares, which can only be traded by farmers. The shares last traded at $7.42 compared with a pre-TAF “fair value” share price – set by Fonterra – of $4.52. . .

Depression in rural communities a concern:

With a disproportionate number of suicides in the rural sector, Federated Farmers is calling for a proactive approach to solve the problem.

Hawke’s Bay farmer and the province’s Dairy Chairperson, David Hunt, has experienced depression first hand. He knows just how frightening and lonely it can be. Here is his story:

“A farmer suicide recently compelled me to come forward, as I have great respect for what John Kirwan has done for mental health and I wanted to share my experience to help farmers. What helped me accept my depression were the people opening up to me about theirs. There is no shame in it, depression is a hereditary illness that causes a chemical imbalance in your brain, there’s no choosing what illness you get,” he says. . .

Education will help quad bike safety – Jeanette Maxwell:

Quad bikes have been in the news following two deaths and several injuries over the Christmas and New Year period.

Most incomprehensible was the incident in which 6-year-old Ashlee Shorrock suffered serious injuries after being flung from a quad bike that veered off a Hawke’s Bay road late at night. What were she and the four adults also injured in the crash doing on the bike in the first place?

However, while it may not seem like it from the intense media coverage, quad bike deaths and serious injuries remain relatively rare despite the 100,000 machines in New Zealand.

While quad bikes are dangerous if mishandled and the farm toll is serious and must come down, we fear that politicians will respond to the media coverage by jumping at ”solutions’ . . .

Chance to win a free paddock and boost productivity:

Federated Farmers hopes all farmers will enter the Pasture Renewal Charitable Trust’s (PRCT) ‘Win a Free Paddock’ competition which begins on 20 January and runs through to 28 February.

All farmers are eligible to enter for three chances to win $8000 worth of products and technical advice used in the pasture renewal process.

“Federated Farmers is proud to support PRCT’s work in this area because pasture renewal is a core farming activity improve pasture quality, which in turn brings greater productivity, increased returns, improved animal health and more farm management options,” Federated Farmers board member and New Zealand Grassland Association executive member Anders Crofoot says. . .

Seafood New Zealand Chief Executive announced:

The chair of Seafood New Zealand, Eric Barratt, today announced that Tim Pankhurst has been appointed chief executive of Seafood New Zealand effective from April 2013.

Mr Pankhurst is currently the general manager of the Communications and Media Industry Training Organisation (CMITO) and Print NZ, as well as having an advisory editorial role with the Newspaper Publishers’ Association (NPA). He was previously chief executive of NPA and is a former daily newspaper editor of The Dominion Post, The Evening Post, Waikato Times and The Press. . .

Husqvarna joins the Sponsor Family of the ANZ Young Farmer Contest:

New Zealand Young Farmers are proud to announce Husqvarna NZ have partnered with the ANZ Young Farmer Contest as prize sponsors of New Zealand’s Ultimate Rural Challenge.

Husqvarna is a leading manufacturer of outdoor power equipment, designed to work in the toughest of conditions. One of the oldest industrial companies in the world with more than 300 years of history and experience, the Husqvarna Group today is the global leader in outdoor power products for forestry, lawn and garden care. . .

Rural round-up

Times they are achanging – Gravedodger:

As a child in the 1950s, the Amuri Basin on the northern border of Canterbury  was often almost a desert due to low rainfall, NW winds and soaring summer temperatures, as was the case for much of the east coast of both islands.

The “Red Post”, just north of Culverden Village (which incidentally often rates a mention as a summer hot spot on evening infotainment shows), was in an area of pastoral grazing country that struggled to sustain one sheep to an acre.
Today it stands in a sea of green grass and productive farming that makes my memory seem improbable. . .

Our agriculture’s much more than the sum of its parts – Pasture Harmonies:

Too much, arguably all the time, we look at all the individual components of our farm production systems……and beat ourselves up about them.

We could use less fertiliser, our use of water isn’t that optimal at times, occasionally there’s animal welfare issues, and as for degradation of waterways……

And that’s just on-farm. . .

 

Optimistic signs for coming season’s red meat trade – Allan Barber:

After some harrowing experiences last season for the meat industry, both processors and farmers, 12 months on things are looking up. This sense of optimism hasn’t yet been reflected in prices from the meat companies, but statements from those in the know strike a perceptibly more positive note.

Last year the lamb kill was down by a million, there was drought in significant livestock areas, the dollar was too high and so was the procurement price for lamb. While beef remained relatively unaffected by the hype, the price really not changing much in a year, sheep meat was a completely different story. Driven by the unholy combination of scarcity and tight shipping deadlines for the Christmas trade, the procurement price hit $8 a kilo and struggled to get down from that level. . .

Trading Among Farmers reality at last – Allan Barber:

The day when outside investors can apply for units in the Fonterra Shareholders Fund to be listed on the NZX and ASX has arrived at last. Getting to this point has been a long and tortuous process during which Fonterra has consulted its members, finally gaining the required majority vote in favour of establishing Trading Among Farmers (TAF).

TAF will enable those Fonterra’s shareholders that wish to free up some capital to deposit shares in the fund, provided they retain enough shares to match their milk supply. These shares can either be bought by other shareholders who would like to increase their shareholding or exchanged for the units with rights to dividends and share price value changes.

Rural round-up

European farmers surprisingly upbeat – Gerald Piddock:

European farmers are surprisingly upbeat about the future of their industry despite the continent being still very much in a recession, Beef+Lamb chairman Mike Petersen says.

Speaking from Brussels, Mr Petersen said he expected to see “doom and gloom” as a result of the recession.

“I have been pleasantly surprised at the mood of the farming population over here. They are very optimistic about the future and quite optimistic about the coming season.”

Petersen has been in Europe, meeting with counterparts and discussing their expectations for the coming year. He outlined his observations in a Beef+Lamb conference call. . .

Water priorities come up trumps – Jon Morgan:

The elephant in the room analogy is becoming a bit overworked, but I like it. Lately, the elephant has been really showing off. In the debate about freshwater quality the elephant is nitrogen leaching.

It was brought into the room by conservationists a few years back but attempts to prod it into life largely failed. It just sat stinking in the corner.

But a few weeks ago Judge Craig Thompson of the Environment Court climbed aboard and hit it with a big stick.

The elephant reared back on its hind legs and let out an ear-splitting roar, loud enough to be heard in every milking shed and dairy factory throughout the land. . .

NZ Commodity prices rise 1.3% in October, led by wool, cheese:

New Zealand commodity prices rose for the third straight month in October, led by gains in wool and dairy products while aluminium fell.

The ANZ Commodity Price Index rose 1.3 percent last month with 12 commodity prices gaining two declining and three unchanged.

A slightly firmer New Zealand dollar meant the gain in the ANZ NZD Commodity price Index was a slightly lower 1 1 percent. . .

Fonterra’s Trading among farmers launches but I still don’t understand it – Milking on the Moove:

I’ve blogged about TAF before here and here. We now have a bit more information on how it will play out in practice. But to be fair, I still don’t really understand it and this view has been expressed by many observers in the media and the industry. It is not fully understood and some of the reason for this is Fonterra themselves don’t know exactly how the governance will work, as they are still undertaking a review.

My thoughts;

Will farmers sell some of their shares into the fund?
I think they will, there are lots of farmers who have very high debt levels, the drop in the forecast payout is making many farm budgets drop into the red. I think many of these farmers would sell 25% of their shares into the fund and use the proceeds to pay off debt.

The dividend portion of the shares is estimated to return net 4.2%-5%, farmers will be paying 7%-8% interest on their debt, so they make a greater return by reducing their debt.  . .

New director shows youth and wisdom –

THE RISING average age of farmers creates succession problems not only for farms and orchards; it is also seen in the boardrooms of primary producer businesses.

That’s why Zespri’s newest director Nathan Flowerday is pleased an Agmardt scheme which helped him get elected to Zespri’s board will be extended to others. 

Flowerday was the successful candidate in 2011 for an associate board trustee position created by Agmardt on its own board to give young farmers or growers governance experience. He believes that experience gave Zespri voters the confidence in him to elect him in July this year to the Zespri board. 

As a result, he and Agmardt are urging other agribusiness organisations to pick up the idea of creating an associate board-membership position, or at least establish observer positions on their boards. . .

Record Early Entries in Dairy Awards

There’s been a record-breaking response to the number of entries received in the 2013 New Zealand Dairy Industry Awards, since entries opened just yesterday.

National Convenor Chris Keeping says 33 entries were received online at www.dairyindustryawards.co.nz yesterday – the first day people could enter the New Zealand Sharemilker/Equity Farmer of the Year, New Zealand Farm Manager of the Year and New Zealand Dairy Trainee of the Year competitions. . .

Babich Wines Look to Expand in Marlborough

The 96 year old New Zealand wine company, Babich Wines Limited, announced today the sale of their 50% share of the Marlborough winemaking facility, Rapaura Vintners Limited to Treasury Wine Estates.

Rapaura Vintners Limited, an integrated winery, packaging and warehouse facility has been invaluable for Babich over the last 12 years as they have continued to grow production and sales of their Marlborough wines.

Babich Wines will now look to build their own state of the art facility in Marlborough – a move that will give the family owned wine company full control over their future winemaking in the region, where over 80% of the company’s production comes from. . .

Rural round-up

New dairy chairman wants unity – Andrea Fox:

Fonterra chairman-elect John Wilson says ensuring there is the smoothest of board leadership transitions and uniting the farmer-owned co-operative after the rigours of the internal TAF debate are his priorities. 

    The Waikato farmer-elected director will take the reins of New Zealand’s biggest company in December from Sir Henry van der Heyden, who steps down after 10 years in the job. 

    Wilson, 47, will take his seat at the top of the table just after Fonterra is scheduled to have introduced share trading among farmers, or TAF, as it has come to be better known after more than two years of debate. . .

Biofuels and energy production dominate Europe’s landscape – Allan Barber:

After a week in England and a month touring central Europe by road, rail and river, I have gained a superficial impression of the predominant types of agricultural activity in the region. I am talking about Austria, Bavaria, Rhineland and some of the old Communist countries – East Germany, Poland, Slovakia and the Czech Republic.

While these observations cannot claim to be comprehensive or even accurate in the matter of detail, they will provide a fairly accurate point of contrast with New Zealand’s agricultural landscape.

In particular they indicate a totally different set of political, economic and environmental priorities in Europe. . .

Farming bears – Bruce Wills:

In 12-months you could say we have gone from farming forward to farming bears, such was the sentiment in Federated Farmers new season Farm Confidence survey.

While agriculture will generate $21.7 billion in revenue over 2012, more than half, $11.9 billion, will go on the goods and services farmers consume.

Much of this intermediate consumption is spent locally on everything from number eight wire to builders and injects billions into the provincial economy’s heart.

Being intermediate consumption, it does not include the wage bill for 151,000 primary workers, interest or taxes either. . .

Time to break free of “No 8 wire” mentality – Jon Morgan:

Our pride in our heritage of being useful, practical people who can turn our hands to anything is holding us back, says Claire Massey. 

“That No 8 fencing wire mentality is now at a point where it’s hampering us,” the newly appointed Massey University director of agri-food business says. 

“We say ‘We can do anything’ when we can’t. We’ve got to break free of that. It was useful, but now we need to find the experts.” 

The irony is that it is not only an image we have of ourselves but that others have of us, she says. . .

Ngai Tahu Holdings CEO leaves –

Christchurch’s Ngai Tahu Holdings Corporation chief executive Greg Campbell is leaving the job to take up the reins at big fertiliser co-operative Ravensdown. 

    Ravensdown, 100 per cent owned by 30,000 farmer shareholders, announced today the appointment of Campbell as its new chief executive to replace Rodney Green when he retires on December 31, 2012. 

    Campbell has been chief executive at Ngai Tahu for three years. . .

Lincoln farm in drive to be more efficient – Gerald Piddock:

The Lincoln University Dairy farm finished the 2011-12 season well ahead of its production budget. But it will now seek ways to become even more efficient. 

    The farm produced 297,740kg milk solids at 471kg per cow, well ahead of its budget of 281,600. This was achieved with 5 per cent fewer cows. 

    “We ended up with 12.5 per cent more production per hectare than last season and 15 per cent more profit,” farm manager Peter Hancox said at a field day at Lincoln. . .

Quest for lower nitrate leaching – Gerald Piddock:

Work is underway at Lincoln University to determine ways of reducing the environmental footprint of the wintering systems on dairy farms. 

    Lysimeters are being used to simulate the nitrogen levels within trial plots of three different wintering systems. These plots are early and late sown kale crops and a fodderbeet crop planted at the Lincoln University Dairy Farm’s wintering site, Ashley Dene Farm. . .

 

Who’d buy shares without voting rights?

Who’d want to buy shares which don’t carry voting rights?

This is one of the questions being asked in the wake of Fonterra shareholders’ vote to approve Trading Among Farmers.

Given the number of people who own shares now who know little if anything about the companies, don’t read prospectuses or annual reports, don’t attend AGMs and either don’t vote or just do as the board advises, I don’t think the lack of voting rights will be a stumbling block.

Farmers vote for TAF

Fonterra shareholders have voted in favour of the company’s Trading Among Farmers plan.

The resolution for Trading Among Farmers received a 66.45% vote in support at Fonterra’s Special Meeting today, with two out of every three votes in favour.

Fonterra Chairman Sir Henry van der Heyden said the final vote on the share trading scheme attracted a record voter turnout.

“Our farmers have voted in big numbers, representing 85% of the Co-op’s milksolids. It is great to see so many taking part and having their say.

“Now we can move forward with this important evolution in our capital structure,” he said.

“We’ve spent six years talking about capital structure and it has been a rigorous debate and process. Our farmer shareholders have made a great contribution and the final version of Trading Among Farmers is all the richer because of that input.”

Sir Henry said TAF ensures a stable, permanent capital base for the Co-op and secures its future.

“We broke new ground with the formation of Fonterra and now we have the support from our farmer shareholders to refine that model and to break new ground again.

“As in the past, our farmer shareholders will now get behind the Co-op as we move forward. That’s what we all want, a united Fonterra.

“Over recent months we have used some of the best legal minds and co-operative specialists to stress test the concept and proposed trading system as part of the Due Diligence process. This final vote shows the majority agree that TAF is a fundamental pillar for the Co-op and the Board is absolutely unanimous in the belief that this is a lasting solution.”

Sir Henry said the Board listened to farmer shareholders’ concerns on preserving 100% farmer control and ownership and the integrity of the Farmgate Milk Price.

“We asked our farmers to vote on constitutional changes which would tighten limits on the size of the Fonterra Shareholders’ Fund, which is fundamental to 100% farmer control and ownership, and preserve the integrity of the Farmgate Milk Price. This resolution required a 75% vote and received 72.8% support.”

The Board will take this resolution back to the next annual meeting in November and will seek Shareholders’ Council support for this. In the interim, further planning on Trading Among Farmers will proceed within the parameters outlined in Resolution 2. Sir Henry said the Board believed this was in the best interests of the Co-op.

Fonterra Chief Executive Theo Spierings said the vote for TAF means Fonterra can be in charge of its own destiny.

“TAF will stop money washing in and out and give the Co-op a stable, permanent capital base to deliver on its Strategy Refresh.

“There is no co-operative anywhere around the world that is the same as Fonterra. TAF is completely unique as is the solution to eliminating redemption risk.

“We will now be able to implement our strategy and remain a relevant player in the global dairy industry. With overall demand for dairy growing, TAF will ensure that we are well placed to grow volumes and protect our position as the world’s leading dairy exporter.”

Sir Henry said the Board is still working towards a November launch for TAF but this will be dependent on market conditions. The pre-conditions in the Constitution still need to be finally satisfied, including the support of the Shareholders’ Council. The Board is confident that the necessary changes to the Dairy Industry Restructuring Act and the waivers are on track for this to happen. The Board will determine an exact launch date closer to the time.

The result of the vote is as follows:

• Resolution 1: Trading Among Farmers – 66.45%
• Resolution 2: Constitutional Changes for Trading Among Farmers – 72.8%
• Resolution 3: M. Beach Proposal – 20.2%
• Resolution 4: Upson Downs Limited Proposal – 23.26%

The result is in effect a vote of confidence in the board and management who have spent years designing a scheme to ensure supplier control while minimising redemption risk.

TAF best for Fonterra and suppliers

The biggest risk for Fonterra and its shareholders, who are also most of its suppliers, is redemption risk.

As the price rises that risk increases because the amount of money the company would have to pay to any farmers who want to redeem their shares increases.

Under the existing system, more suppliers might be tempted to sell when the share price is higher and go to other companies which don’t require suppliers to be shareholders.

Trading Among Farmers (TAF) would allow those farmers to sell shares into the pool and retain their voting rights.

Existing shareholders or anyone else can buy from the pool but those shares don’t carry voting rights.

This is best for the Fonterra and suppliers. The redemption risk would be gone and suppliers would still control the company.

Sir Dryden Spring who chaired the Dairy Board when Fonterra was formed supports TAF:

Sir Dryden, now retired from dairy farming and no longer a Fonterra shareholder, thinks farmers will face a bigger threat to their ownership and control if TAF does not go ahead.

“Fonterra was established with a flaw in its structure, and that was the fair value share, which under certain circumstances shareholders can require the company to redeem. Now that puts a huge strain on the company because effectively the share capital isn’t equity at all it’s effectively a contingent liability.”

Sir Dryden says that unless Fonterra can solve this redemption problem, and make its capital permanent, it will under invest in its core dairying activities which he says will lead to under performance and falling income.

That, he says, is a far bigger risk to farmer ownership and control than TAF.

Sir Dryden also says he thinks there will be sufficient safeguards in place under TAF to keep Fonterra in farmer ownership and control.

Fonterra is New Zealand’s only world-wide company.

It needs capital to continue growing and to keep its place in the world market. TAF enables more capital to come in without diluting supplier control.

Fonterra seeking clear mandate on TAF

Voting packs on Trading Among Farmers (TAF) have gone out to Fonterra shareholders and the company has given an assurance it will require more than a simple majority in support of the move:

Fonterra’s Board will be looking for a clear mandate from the Co-operative’s 10,500 dairy farmers when they vote on Trading Among Farmers (TAF) on June 25, says Chairman Sir Henry van der Heyden.

While the TAF resolution at the special shareholder meeting is an ordinary resolution that requires a 50% plus majority to be passed, Sir Henry says the Board won’t be proceeding unless it has a much stronger mandate than that.

“I want a mandate that will unify the Co-operative around this proposed evolution in our capital structure,” he said. “This is the final vote in a long process. Shareholders have given us strong support in the earlier stages and that is what the Board is looking for this time.

“TAF offers a means of sustainably protecting 100% farmer control and ownership into the future and reducing risk to our Co-operative, so we’re looking for a mandate that enables the Board to continue to work towards protecting and strengthening Fonterra,” said Sir Henry.

“We have listened to our farmer shareholders and their key concerns rest on two fundamental points: Preserving 100% control and ownership and the integrity of the Farmgate Milk Price.

“Accordingly, we have proposed a range of resolutions for farmer shareholders to vote on that will tighten limits on the size of the Fonterra Shareholders’ Fund, which is fundamental to 100% farmer control and ownership, and preserve the integrity of the Farmgate Milk Price.

“These resolutions would require Constitutional change and would therefore involve a 75% vote.

“We propose to decrease the threshold on the size of the Fund from 25% to 20% of total shares, and decrease the number of Dry shares on issue from 25% to 15%,” said Sir Henry.

TAF is the company’s response to redemption risk – the very real threat of too many shareholders redeeming shares at high prices.

The other risk is suppliers choosing to leave the company, or being put off joining, as share prices rise when competitors don’t require the up-front expense of share purchases.

He said that robust modelling and much deliberation by the Board had informed the recommendation for a lower 20% threshold which struck the right balance between flexibility to manage seasonal milk fluctuations and controls to manage risk.

“While we intend to operate the Fund at a size of 7%-12% of total Fonterra shares on issue, we do need breathing room to take account of seasonal changes in milk volume,” he said.

“Milk production is driven by weather — for example this year we anticipated 3% milk growth but got 10%. Add 10% growth to our 7%-12% ideal Fund size and a 15% cap is too restrictive.”

He said that over time the Fund would be managed within the target size range, but the Constitutional limit needed to be higher to allow for seasonal shifts in milk production.

“It’s a combination of hard maths and good judgement that leads us to recommend 20%,” he said.

Sir Henry said another key resolution was to enshrine protections for setting the Farmgate Milk Price in the Co-operative’s Constitution so that future changes would require a 75%-plus majority.

“The proposal is that the Shareholders’ Council’s appointment to the Milk Price Panel be added to the constitution,” he said.

“This underpins the integrity of the Farmgate Milk Price going forward,” said Sir Henry. “Unlikely as it might be, were a future Board were to bow to pressure from investors in the Fund, this would become obvious and the Council’s constitutional ability to protect the process provides a further assurance for farmers.”

He said that Commerce Commission oversight of the Farmgate Milk Price formula — a process being worked through independently of TAF — provided a further safeguard in terms of transparency.

The farm gate price is the main reason farmers want to retain ownership of the company. If non-suppliers had control the pressure would be on to lower the price to provide higher dividends.

 

Shareholders’ Council supports TAF – chair resigns

Simon Couper, resigned as chair of Fonterra’s Shareholders’ Council over the Trading Among Farmers proposal:

Couper’s resignation followed a majority vote by the council in support of the TAF proposal, a view which clashed with his own and made his position untenable, he told BusinessDesk.

“I respect the council’s decision,” he said, but was not personally convinced that the scheme would meet the bottom line objective of securing 100 percent ongoing farmer ownership of Fonterra in perpetuity.

“One hundred percent is 100 percent and in my view, we didn’t get there,” he said, after the council completed a due diligence process on the detail of the TAF scheme, which will go to a special shareholders’ vote on June 25.

Fonterra chair Sir Henry van der Heyden said Couper has done the right thing by the co-operative:

The situation was “not ideal”, van der Heyden told BusinessDesk. “But hey, I’m delighted about where the Shareholders Council got to”, with replacement chairman Ian Brown reporting “a very strong” mandate from the rest of the council.

“I don’t know exactly what the number are, but north of 80 percent,” he said.

The numbers are important because at least some of the votes at a special shareholders’ meeting on June 25 to approve TAF will require 75 percent majority support and involve constitutional change. . .

Couper’s resignation notwithstanding, the Shareholders’ Council’s support of the proposal makes it much more likely farmers will support TAF.

The proposal is contentious and is not without risk.

But there is a greater risk to the company in doing nothing about the threat which could come if too many farmers redeem their shares.

 

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.