It’s shaping up as a tough season for New Zealand’s dairy farmers, who once proudly wore the label of the “backbone of the NZ economy” , earning by far the largest share of the country’s export income.
So what are the problems confronting the industry?
Uncertainty in markets, for starters. Prices at the latest Global Dairy Trade auction this week slid downward for the fifth time in six auctions.
The Chinese economy is under pressure as Trump steps up his tariff war. Brexit is a threat which could disrupt NZ’s dairy trade to both the UK and EU markets.
At home the big question is whether Fonterra, after racking up a $196m loss last season, can claw its way back to profit.
The giant co-op has been trimming debt and selling assets such as the iconic business Tip Top. But it hasn’t been been able to find a buyer for its stake in Chinese infant formula manufacturer Beingmate which cost it $755m in 2015, an investment now rated as possibly the worst ever by a NZ company in an overseas venture. Fonterra wrote down the investment by $430m last year and since then efforts to find a buyer for its 18.8% stake have proved fruitless.
The co-op this week confirmed its intention to sell its stake as part of its three-point plan to turn around its business. CEO Miles Hurrell says Fonterra has talked to a number of parties regarding the potential sale of its entire stake in Beingmate but has yet to find a buyer. As a result the co-op is considering selling part of the holding. It could be a slow process with Beingmate shares down at 4.94 yuan (compared with the 18 yuan per share Fonterra paid).
Fonterra has also been eyeing an exit from several of its other overseas businesses as it seeks to sharpen its profitability.
Beingmate is not the only Chinese headache for Fonterra. It now has the Chinese dairy giant Yili making its presence felt with its takeover of the country’s second biggest co-op Westland Milk to add to its other NZ dairy product manufacturer Oceania.
On the home front dairy farmers are faced with new financial penalties as the government brings agricultural emissions into the framework for combating climate change, despite there being no tools available to measure accurately methane emissions from individual dairy farms.
So the incentive for a farmer making strenuous efforts to reduce emissions is the same as for one who doesn’t.
Federated Farmers argues the government should adopt a methane target which science indicates will ensure no additional impact on global warming, rather than an unsubstantiated aspiration that will cause lasting damage to rural communities and the standard of living of all NZers..
The Feds’ climate change spokesperson, Andrew Hoggard, told the Select Committee hearing on the Zero Carbon Bill the science says NZ agriculture needs to reduce methane by about 0.3% a year, or about 10% by 2050, to have no additional warming effect – or in other words a zero carbon equivalent. Yet a 10% target has been set for 2030 – much earlier than for any other sector of society – and up to 47% methane reductions by 2050.
Hoggard says that appears to be
” … because it seems easier to tell people to consume less animal-based protein than it is to cut back on trips to Bali.
“If that is the case then let’s be open and honest and admit the agriculture sector is being asked to do more than its share.“
Farmers may feel aggrieved by another of the government’s climate change policies whereby new conventionally powered vehicles are to be taxed to subsidise the cost of new electric vehicles.
To cap it all, heavily indebted dairy farmers could find their bankers become much less accommodating as the Reserve Bank imposes new rules on bank capital ratios.
But there was a ray of sunshine during the week – the fall in the value of the NZ dollar against the currencies of most of its trading partners.