Front up Fonterra

December 14, 2017

On the AM Show this morning Duncan Garner criticised Fonterra for not fronting up.

The company had been asked to come on the show to talk about the price of butter.

No-one would.

I don’t understand why.

Explaining the high price of butter is simple.

After years of being advised to eat less fat in general and less butter in particular, the advice has changed. Butter is no longer the bad diet bogey it was, people are discovering, or rediscovering, the joy of it and demand has risen faster than supply.

How hard would it have been for someone from the company to explain that?

This isn’t the first time Fonterra wouldn’t front the media. If the company doesn’t want all the good its advertising campaign is doing to be undone it must be the last.

Chief executive Theo Spierings is paid an eye watering amount to run the company.

I don’t have a problem with that but I do have a problem if he isn’t doing his job properly. Part of a CE’s job is to front the media or, if he’s not the right person to do so, to find that person and make sure s/he does.

Fonterra is running a very good advertising campaign which shows the interconnections between everyone who contributes to making the company work and work well and the economic and social benefits of that.

It’s not just about converting grass to milk and processing and selling it. It’s about all the people who use the milk and the ones who do the work between the paddock and plate, glass or cup who enable them to do so.

It’s a really good story but there is a huge risk that good will be undone if the company turns down requests to front the media.

Advertisements

Fonterra forecast down, shares up

December 2, 2017

Fonterra has dropped its forecast payout after being ordered to pay Danone $183 million in compensation:

Fonterra Cooperative Group has cut its forecast for 2018 earnings per share after an arbitration tribunal in Singapore ruled it must pay 105 million euros ($183 million) to Danone in the wake of 2013’s whey protein recall.

The award for recall costs suffered by Danone comes after the French company launched arbitration proceedings in Singapore and a legal suit in the New Zealand High Court, estimating the cost of recalling the whey protein concentrate to be about 350 million euros. At the time, Fonterra said it expected any court action would show it wasn’t liable under the contract. The recall was recognised as a $14 million contingent liability in its accounts.

In 2013, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria. The whey protein was ultimately cleared as a false alarm. Fonterra cut deals with seven of the eight customers affected.

“We are disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business,” Fonterra chief executive Theo Spierings said in a statement. Fonterra was “reviewing the tribunal’s findings closely, but recognised that there was likely to be limited options for challenging the decision of an international arbitration.”

Fonterra had assessed the potential financial implications of the decision and made “a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents,” the company said. The decision wouldn’t impact the company’s forecast farmgate milk price, currently at $6.75 per kilogram of milk solids.

“Fonterra is in a strong financial position and is able to meet the recall costs,” Spierings said. As at July 31, Fonterra had $3.8 billion in undrawn lines of credit and $393 million of cash.

Earlier today, Danone said it “welcomes this arbitration decision as a guarantee that the lessons from the crisis will not be forgotten.” The arbitration “underscores the merit of its legal actions against Fonterra, including to champion the highest standards of food safety across the industry,” it said. Food companies and their suppliers “can only work together through a solid relationship based on trust, transparency, and accountability. Danone will continue to build that relationship with its suppliers across the world.” Danone’s New Zealand subsidiary Danone Nutricia ceased doing business with Fonterra in the wake of the dispute.

Fonterra had its shareholders’ fund units and listed bonds halted from trading today ahead of a media conference at 3pm in Auckland.

“While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems,” Spierings said. “We operate in a fast-changing and complex industry, and will always prioritise food safety and quality in our commitment to be the world’s most trusted source of dairy nutrition.”

Since Danone ended its supply contract with Fonterra, it’s sourced product from Synlait Milk and other manufacturers and bought two Kiwi dairy processing companies, Sutton Group and Gardians, with the latter providing access to milk supply from 18 farms owned by Grant Paterson of Dunedin. 

While the forecast payout has dropped, Fonterra shares gained in price:

Fonterra Shareholders Fund units gained 0.6 percent to $6.40. . . 

The award for recall costs suffered by Danone comes after the French company launched arbitration proceedings in Singapore and a legal suit in the New Zealand High Court, estimating the cost of recalling the whey protein concentrate to be about 350 million euros. At the time, Fonterra said it expected any court action would show it wasn’t liable under the contract. The recall was recognised as a $14 million contingent liability in its accounts.

Fonterra had assessed the potential financial implications of the decision and made “a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents,” the company said. The decision wouldn’t impact the company’s forecast farmgate milk price, currently at $6.75 per kilogram of milk solids.

“In the share price you’ve seen an element of relief, albeit on low volume” said Rickey Ward, NZ equity manager at JBWere. “There’s an issue that had been overhanging the company, which could be enormously material, which has been resolved, and it doesn’t appear there’s any desire to pursue recourse on this.”

“It’s full and final, it provides clarity and therefore investors can start to analyse or take a view of the company on fundamentals now, rather than this issue that’s been lurking in the background,” Ward said. “It could have been quite stressful for them if it had been at the upper end of what some people were suggesting. The company would have been capable of addressing it, but they would have had to find a way of addressing it which might not have pleased the unitholders in the shareholders’ fund.”

The market must have been expecting worse news.

Farmers have been anticipating a drop in the farmgate milk price in the wake of price falls in several successive GlobalDairyTrade auctions. However, it’s the earnings per share forecast which has been lowered, not the farmgate milk price.


Rural round-up

November 21, 2017

Wool gains ‘dream come true’ – Sally Rae:

Watching the volume of wool growing for Lanaco’s healthcare products and seeing lambs being born from specifically bred genetics is a ‘‘dream come true’’ for Nick Davenport.

Mr Davenport is chief executive and founder of the Auckland-based company, previously known as Texus  Fibre, which specialises in fibre innovation and developing functional materials derived from wool.

Wool from sheep developed by Wanaka man Andy Ramsden, from the Dohne, Cheviot and Finn breeds, and trademarked as the Astino breed, is used in healthcare products. . . 

Family’s top two places a show first – Sally Rae:

‘‘Not a bad show’’ is how Will Gibson dryly describes his family’s record-setting feats at last week’s Canterbury A&P Show in Christchurch.The Gibson family, from Middlemarch, won the prestigious Senior Meat and Wool Cup with their yearling supreme champion Hereford bull and were runners-up with their 2-year-old Santa Gertrudis cow with calf at foot.

It was the first time in the show’s history the same exhibitor has won the top two placings and it was well-deserved recognition for a family who work hard, are passionate about their livestock and also about exhibiting at A&P shows.

The yearling bull Foulden Hill Mustang was unbeaten in his classes over the two days, both in the Hereford and all-breeds classes, and he also won the Junior Meat and Wool Cup. . . 

Alternative proteins – on the verge of  mainstream:

Alternative proteins are on the verge of becoming mainstream and ‘stealing’ growth from traditional meat products as they play a growing role in meeting consumer needs and preferences, according to a recently-released global research paper.

The report, Watch out…or they will steal your growth by agribusiness banking specialist Rabobank, examines why alternative proteins – including plant-based meat substitutes, emerging insect or algae-based products and lab-grown meat products – are starting to successfully compete for the “centre of the plate”.

Report author, Rabobank global sector strategist for Animal Protein Justin Sherrard, says it is the ‘growth’ – rather than the current market size – of alternative proteins that is of greatest significance. . . 

Predator Free farm award:

Farmers will be recognised for their part in the nationwide movement of Predator Free New Zealand when a new Predator Free Farm Award will be presented next year as part of the Ballance Farm Environment Awards.

Sponsored by Predator Free NZ Trust and the New Zealand Farm Environment Trust, the new award will acknowledge the efforts of farmers who have put in place systems to effectively manage and monitor predators including possums, rats, feral cats, ferrets, weasels and stoats.

The award will be given to farmers who have been successful in controlling predators and are likely to have wider native biodiversity and habitat enhancement programmes in place.

Chair of Predator Free NZ Trust, Sir Rob Fenwick, said “farmers manage a significant proportion of the New Zealand landscape so they are vital in the drive to make New Zealand predator free.” . . 

Beef + Lamb New Zealand extends its support of B+LNZ Genetics:

After four years of operation and a series of successful milestones, Beef + Lamb New Zealand (B+LNZ) has extended its support of wholly-owned subsidiary B+LNZ Genetics beyond its initial five-year funding programme.

B+LNZ Genetics was established in 2013 to consolidate farmer investment in New Zealand’s sheep and beef genetics research and innovation into a single entity. Its programme was forecast to generate $742m of benefits over 10 years, but that figure has since been reviewed upwards, to $947m, or $7,890 per annum per sheep and beef farm. With rising costs this helps keep farmers competitive. . . 

Butter at record $5.67 a block :

Rising dairy prices have pushed food prices up 2.7 percent in the year to October 2017, Stats NZ said today. This followed a 3.0 percent increase in the year to September 2017.

Butter prices led the way again – up 62 percent from the same time last year. Milk and cheese prices also increased (up 7.5 and 12 percent respectively) and had large contributions to the increase in food prices seen in the year to October 2017.

“Dairy products are very widely used inputs in a number of food items,” consumers price index manager Matthew Haigh said. “The effects of price rises flow on to products such as takeaway biscuits, buns, cakes and coffee, and eating out for lunch and dinner, all of which saw increases in the year to October 2017.” . . 

Global Dairy Platform announces new chairman:

Global Dairy Platform (GDP) has appointed Fonterra Chief Executive Officer, Theo Spierings, as GDP chairman, effective November 16, 2017.

Mr. Spierings says he is pleased to be taking on the role and playing a part in maximizing the contribution dairy can make to the world.

“More than ever, people are turning to dairy for nutritional security and sustainable food and every day we see the good that dairy can do. . . 

 


Rural round-up

November 3, 2017

The big dry – Waimea Water:

The 2001 drought was the most severe drought our region experienced in 60 years. Different phrases were used to describe it, including a shortage or a crisis. Early on it was ‘water fears.’ In the end, the drought stuck and it became known as the ‘Big Dry’ and it affected everyone in the region from Nelson to Richmond to Motueka to Golden Bay.

Riverbeds dried up. Saltwater threatened the bores in the lower Waimea River. Stories about the scarcity of rain appeared almost daily in newspapers. Councils met to assess the water supply risks and the rationing requirements. Green pastures were brown with no grass in sight. Dairy farm stock had to be dried off months early, with cattle and sheep sold below cost to cover lost revenue. Permitted users, including irrigators across the Waimea Plains, had been reduced to 40 percent of their allowed take.  . .

No Waimea dam: I’m out, says long-time market gardener Mark O’Connor – Cherie Sivignon:

For four generations, Mark O’Connor’s family have been on the Waimea Plains. For the past three, they’ve been growing vegetables.

But the Appleby Fresh managing director says if there’s no Waimea dam, he will consider subdividing some of the land and selling up.

“We actually had a meeting the other day and said what are we going to do if we don’t get the dam and I said: ‘I’m out of it; it’s too hard to farm without having water’,” he said. . . 

Fonterra to invest $100m in Australia after hitting full milk processing capacityFonterra sees Aus opportunities – Gerard Hutching:

Fonterra has unveiled plans to invest $100 million immediately into its Australian business in a major expansion plan.

It is also looking into the possibility of its Australian operation becoming a co-operative.

Chief executive Theo Spierings told the co-operative’s annual general meeting in Hawera on Thursday that Fonterra’s reputation had climbed from 9th to 5th in the RepZ survey and had “changed the minds of 1.5 million New Zealanders.” . . 

We’ve got the bull by the udder – John King:

Here’s a quiz for morning smoko. According to modern grazing practice, where’s best on the curve in the illustration for the following:

  • · Maximum livestock growth?
  • · Maximum pasture longevity?
  • · Maximum soil development and structure?

Many farmers and all agricultural professionals will know where’s best for growing livestock, a few less will know where’s best for pasture longevity, and most wouldn’t even consider where’s best for soil, let alone there might be two places. That’s due to the prevailing culture and training railroading what we believe is normal – focusing on single goals.John King

Farmer Fast Five – Richard Power – Claire Inkson:

The Farmers Fast Five : Where we ask a farmer five quick questions about farming, and what agriculture means to them. Today we talk to Hawarden Proud Farmer Richard Power, who with his wife Mez, won the Romney section of this years Ewe Hogget Competition.

How long have you been farmer?

I am a third generation farmer.  I was bought up on our stud sheep and beef farm where from a young age was taught how to handle and judge stock.  After a stint at Lincoln I went lamb drafting for 5 years.  Travelling around so many different farms gave me a great insight into different breeds and ways of farming.  I carried on drafting for another 3 years after taking on the home farm with my wife in 1990 and changing to a commercial operation.

What sort of Farming are you involved in?

We are involved in a traditional dryland sheep/beef and crop operation, concentrating on early lamb production. All our lambs are gone by Christmas, and what doesn’t go prime is sold store.  On a normal season the split would be 80% sheep and the beef/crop sharing 10% each.  Beef cattle of any type are traded from Autumn to Spring and Barley is grown for a local farmer. . . 

Major deer shed upgrade underway:

Most deer farmers are upgrading their deer sheds so that velvet is harvested, handled, stored and transported in a clean environment.John Tacon, quality assurance manager for Deer Industry NZ (DINZ), says the regulatory bottom line is that all sheds must have a “clean zone” – a designated area where velvet antler is removed, handled and frozen. In this zone, all contact surfaces must be washable and clean prior to velvet removal and handling. 

“As soon as practicable after harvesting, but within 2 hours, velvet also needs to be placed in a velvet-only freezer capable of freezing to at least minus 15 deg C.” 

At some time in the future he expects standards could well be “ramped up, but it’s a good starting point”. . . 

Autumn – Ben Eagle:

 Today I began the first of what will be many bramble bashing (or should that be obliterating) sessions throughout the autumn/winter as I try to get on top of the scrub encroaching on some of the farm’s stewardship plots. The sky seemed to be missing today, a great grey and white canvas only intermittently marked by the odd passing pheasant or pigeon, the former unable to get much lift to make sufficient impact upon the bleak sky as I looked upward and across. Pheasants annoy me, with their loud cackling call, their pompous plumage and their inability to fly properly, but I know I shouldn’t hold it against them. As I write this post now I hear them outside. Something has spooked them and they are calling out, confused and terrified of the world. Who can blame them I suppose when you primary reason for existing so far as human kind is concerned is to be shot. . . 


Rural round-up

October 7, 2017

Time to end cartoon days for meat industry – Pam Tipa:

Meat Industry veteran Sir Graeme Harrison reckons the sector was summed up by a 1994 cartoon captioned, ‘we can’t see, we don’t hear and we don’t talk’.

“I think that is pretty typical of a lot of New Zealand’s export sector to be frank,” the ANZCO Foods Ltd founder and chairman told the recent ExportNZ conference in Auckland.

“Really what we’ve got to do is join hands and collaborate. That is certainly what ANZCO has done in its business relationships around the world.” . . 

Commodities and cost savings drive Fonterra’s performance – Keith Woodford:

Fonterra’s 2017 financial performance was a solid result, despite profits dropping 11 percent to $745 million. The main cause of the drop was the higher farm-gate price of milk supplied by its farmers, which is a cost to corporate Fonterra.

This farm-gate price is based on commodity returns and is largely beyond the control of Fonterra. The decline in profit would have been much greater if it were not for a six percent reduction in operating costs.

It is these operating cost savings which have fuelled the more than $5 million bonus payments this year to CEO Theo Spierings. These savings can be directly attributed to the so-called V3 strategy which was Spierings’ baby. . . 

Fonterra’s payout may be at risk after global dairy prices undershoot – Rebecca Howard:

(BusinessDesk) – Dairy prices undershot expectations in the overnight auction and some economists say it points to weaker demand and stronger supply, threatening Fonterra Cooperative Group’s forecast payout.

The NZX Dairy Derivatives market pointed to around a 5 percent lift but instead the GDT price index – which covers a variety of products and contract periods – fell 2.4 percent from the previous auction two weeks ago to US$3,223.

“The fall was a surprise and must be telling us something about demand that the market did not already know,” said Westpac Banking Corp chief economist Dominick Stephens. . . 

Meet the  new King of the North – Pam Tipa:

New National MP-elect for Northland Matt King, who took the seat off Winston Peters, is not taking anything for granted until the special votes are counted.

Although he is about 1300 votes ahead and has been told that is a safe margin, he will wait and see before making any big decisions.

They will include whether to lease out the 283ha beef farm at Okaihau that he bought only six months ago from his father, having leased it himself for the past 10 years. He has lived on the farm most of his life.

But he says there is no way he could give his best to his new role as an MP and continue to run the farm himself. . . 

Farm Plan focus in Central Hawke’s Bay:

Hawkes Bay Regional Council’s land advisors met with 34 Farm Plan providers in Waipawa on Wednesday to tackle the challenge of delivering 1,100 Central HB farm plans by 31 May 2018.

The regional council’s Tukituki Plan will lead to better water quality in the Tukituki catchment through land use practice improvements and landowner-led innovation. At this stage, the pressure is on individual landowners to commit to work with Farm Plan providers. The Farm Plans are not a solution in themselves, but spell out the adjustments to make to reduce individual farm impacts on the environment. . . 


Fonterra aims to restore 50 freshwater catchments

July 18, 2017

Fonterra CEO, Theo Spierings, has announced an ambition to restore 50 freshwater catchments, signalling the Co-op’s desire to take a leading role in improving New Zealand’s waterways.

“We acknowledge we have an important role to play in addressing water quality in New Zealand. Kiwis want swimmable waterways and that’s an aspiration we share. We’ll work with local communities to improve the quality of our streams and rivers,” said Spierings.

Fonterra launched its 10 year Living Water partnership with the Department of Conservation in 2013, with the aim of achieving sustainable dairying in healthy freshwater ecosystems. The programme focuses on five catchments and aims to improve natural habitats, and freshwater outcomes.

“Living Water has taught us a huge amount and we are making a significant impact on the initial regions. Now we want to amplify those results with the launch of a new initiative that will target 50 catchments.

“Our immediate focus will be on working with communities, Government and key partners to identify the catchments and develop a strategic framework for the programme. This is a major undertaking and we need to get it right, but we are committed to making substantial progress,” said Spierings.

Spierings made the announcement at the annual meeting of the New Zealand Sustainable Business Council held in Auckland yesterday. The Council’s Executive Director, Abbie Reynolds, said she was delighted Fonterra was making a significant commitment to improve water quality.

“The business case for sustainability is clear and it’s pleasing that a growing number of organisations are making robust commitments to improving New Zealand society and the environment. It is great that Fonterra is making an ambitious commitment, which is both bold and restorative,” Reynolds concluded.

Water degradation has occurred over many years and has multiple causes.

Intensive dairying has been part of the problem but the industry has done a lot to repair the damage and reduce its environmental footprint.

Niwa’s freshwater and estuaries chief scientist Dr John Quinn notes a significant improvement:

There has been a lot of improvement in dairy industry practice in the last 15 years. Dairy shed effluent management has improved and is more professional, and the majority of streams on dairy farms are now fenced to exclude cows. Things like the Farm Enviro Walk Toolkit and Sustainable Dairying Water Accord have increased adoption of a range of good environmental practices. These advances have been industry-led, rather than driven by government rules.” . . 

More than 97% of streams running through dairy farms are now fenced, so cows are out of waterways. Waterways are still receiving E. coli and Campylobacter from other unfenced stock and wild animals. They’re also getting microbial pathogens from land runoff when it rains. A 2005 NIWA study found that rain can wash a million to a billion E. coli bacterium per square metre of hillside into streams.

Riparian strips can help. These are the areas where plants grow alongside streams. They trap and absorb nutrients and microbes, including E. coli, in surface water. In the best conditions, riparian strips can remove at least 60% of nitrogen and 65% of phosphorus from runoff and groundwater.

There’s even more to riparian strips than the benefits to water quality. Trees holds together river banks, which stabilises them as habitats for insects and prevents silting and cloudy water that disturbs fish. The shade of trees creates cooler and more humid conditions, which insects need, and prevents over-growth of plants in the stream. Their branches and leaf litter provides direct habitat and food for many of the insects that like riverside conditions for only parts of their life stages, particularly larval, before moving to other habitats.

It is good to have this acknowledgement of the work that’s been done and the positive impact it’s having.

There’s still a lot more to do and Fonterra’s initiative will make a major contribution to it.


Fonterra forecast payout up 75c to $6

November 18, 2016

Welcome news:

Fonterra Co-operative Group Limited today increased its 2016/17 forecast Farmgate Milk Price by 75 cents to $6.00 per kgMS.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $6.50 to $6.60 before retentions.

Chairman John Wilson said the increase reflects improvements in pricing since September, following the gradual rebalancing of global supply and demand.

“We’ve seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions. On balance, demand continues to be firm. As a result there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast.

“We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers,” said Mr Wilson.

First Quarter Performance Update

Fonterra’s first quarter revenue of $3.8 billion is up six per cent on the same period last year. Sales volumes are up two per cent to 4.9 billion litres liquid milk equivalent (LME), while the gross margin of 22 per cent remains largely unchanged.

Chief Executive Theo Spierings said the first quarter revenue gains reflected broad-based volume and margin growth across the business, and an ongoing focus on cost controls.

“Our operating expenses have reduced by two per cent to $621 million and we continue to keep a close rein on them, in line with the financial discipline shown last year,” he said.

The Co-operative has moved an additional 128 million litres LME into higher-value consumer and foodservice products compared with the same period last year.

“The consumer and foodservice business achieved an improved gross margin of 31 per cent, up from 28 per cent. This reflects the increasing strength of our brands in key markets and our focus on chef-led solutions in foodservice.”

Mr Spierings said while the first quarter performance was pleasing, the Co-operative’s earnings face emerging head-winds for the remainder of the financial year.

“Our current milk collection forecast is 1,460 million kilograms of milk solids (kgMS), down seven per cent on last season, and this is constraining sales.

“In addition there is a potential impact from the price of Milk Price reference products, such as whole milk powder, rising faster than non-reference products.”

Mr Spierings said that, given the Co-operative’s stronger sales performance and lower production volumes, it continues to monitor its inventory and contracted sales position closely.

Chairman John Wilson said the Co-operative has had a strong start to the year.

“The unchanged earnings guidance range of 50 to 60 cents took into account the fact that a higher milk price had the potential to influence margins across the business. However, we do expect this volatility to continue which could impact both milk price and earnings guidance. We will keep our farmers and investors updated as we move through the year,” he said. . .

The wet spring has led to lower production over most of the country but if the forecast is realised, all but the least efficient farms will be safely above break-even.

Debt repayment will be a priority on most farms, but this level of payout will enable more spending on businesses that service and supply farms.


%d bloggers like this: