In its Thursday editorial the NZ Herald speaks an important truth: “Investment important to stay on track”. This won’t have startled its more literate readers but in its text it notes the strong result in the latest Global Dairy Trade auction, which prompted Westpac to raise its forecast for dairy giant Fonterra’s payout to its farmers to $7.50kg/MS this season.
“If this turns out to be correct, it will represent the highest payout in seven years for a sector of the economy that is arguably still NZ’s most important, even before international tourism was effectively suspended by Covid-19”.
The Herald editorial goes on to make the case that despite the buoyant mood, the only realistic way for NZ to remain in such solid shape in the post-Covid era is through stronger business investment.
This is the theme which Point of Order set out earlier this week when it contended Fonterra should go hard with this seasons’s payout to encourage investment by its farmer-shareholders in expanding production.
Dairy farmer confidence has been eroded by urban critics who have adopted the slogans of anti-dairying lobby groups, without (apparently) being aware of the huge strides made in recent seasons within the industry to eliminate what was painted as “dirty dairying”.
The prospect is that commodity prices will remain firm and the NZ dairy industry as a whole has sought to become more dominant at the top end of international market.
In that context, it is interesting to note that one of Fonterra’s international competitors, Danone, has been in the headlines with an activist shareholder demanding the company replace its leadership.
Back here Fonterra CEO Miles Hurrell is not quite ready to concede the latest GDT auction result will lead the co-op will lift its forecast on the payout. Prices rose 4.8%, which on top of the previous rise of 3.9% – according to Hurrell – defied expectations. He described it as a great start to the year.
“The last five events have been heading in the right direction, you know farmers should be feeling positive about this.”
But Hurrell said while things were heading in the right direction, Fonterra will wait for more events before changing its forecast.
“On the back of some increases we saw in early December, we did increase our guidance for the year, so our forecast range is now $6.70 to $7.30. We’ll continue to do our numbers on this over the next few weeks to see how things play out.”
One rural business kept afloat by farmers is Power Farming, a company which sells tractors and agricultural machinery.
Richard Clarke is the Dealer Principal of the Morrinsville branch. He said auction results have a massive impact on investment.
“We’ve seen commodity prices rising steadily and that improves sentiment and confidence within the industry. I mean they (farmers) can have all the money in the world available to them but if there’s no confidence, and the expectations are poor, they don’t spend. So it’s incredibly positive news for us.”
Clark said that rise in confidence made all the difference.
“It’s not gang-busters yet but we’re miles ahead of where we were, confidence wise, and even what we’re selling now than where we were 18 months to two years ago.”
Proof surely of how confidence, based on an affirmative outlook for the undustry, can do for spending, in vestment—and the country at large.