Innovation works very well indeed

Matt Ridley – former science editor of The Economist and prolific popular science writer – has tackled a slippery subject in his book How Innovation Works’. He succeeds in painting a vibrant and at times counter intuitive picture of this process. One that policy makers and public alike can usefully ponder.

A major contribution is demystification.  He trashes the model of a tortured genius locked in the lab. Innovation comes from lots of people, competing or in concert, working by trial and error, sharing or stealing knowledge. It occurs when the conditions are right, because it bubbles out of the accumulation and testing of knowledge (hence the prevalence of simultaneous invention from calculus to light bulbs). ‘Ideas having sex’ is his metaphor of choice. And this tends to happen where innovators can gather and experiment free of restrictions.   

Continue reading “Innovation works very well indeed”

A2 Milk has lost  some of its sharemarket  gloss but has  become a formidable  dairy player with a bright outlook

Two  encouraging signals from the  dairy industry this week underlined  its strength  as  the backbone   of the  NZ  export  economy, all the  more vital since  the  Covid-driven collapse  of the international tourist  industry.

First  came  news that prices  strengthened  at the  latest  Fonterra  global dairy  trade  auction, with  the  average price reaching  $US3157  a  tonne. Prices for other products sold were mixed, with gains for butter and skim milk powder, but falls for cheese and other products.

Analysts  said  it  was  positive  to see  good, strong  demand  from   China. The  price  of  wholemilk powder  which  strongly  influences the  level of  payout to Fonterra’s  suppliers  moved  up  1.8% to $US3037  a tonne.

 ANZ agri-economist Susan Kilsby said there had been some concerns that stocks may be building in China, so it was really positive to see good, strong demand from that market for the dairy industry. Continue reading “A2 Milk has lost  some of its sharemarket  gloss but has  become a formidable  dairy player with a bright outlook”

It isn’t hard cheese if the EU gets its way with GIs, chef insists – but dairy exporters are likely to disagree

Kiwi cheese-makers will be wondering which advice they should take from chef Simon Gault.

This week he was saying they should stop trying to imitate brie and gouda and focus on producing uniquely New Zealand styles.

His advice was given to people watching a webinar arranged by the European Union Delegation to New Zealand, an outfit committed to promoting the EU’s increasing use of geographical indications to protect European products.

In June last year, however, Gault  was singing the praises of NZ French-style cheeses. 

In particular, he was enthusing about a French-style camembert made in the Nelson region.

So you don’t have to go to France to buy a cheese, he advised.

“ Bastille day is coming up – let’s buy NZ French cheese” Continue reading “It isn’t hard cheese if the EU gets its way with GIs, chef insists – but dairy exporters are likely to disagree”

NZ economy gets a shot in the arm (if all goes well) from Fonterra’s revised milk price forecast

Dairy giant Fonterra  has  lifted  the mid-point of its forecast farmgate milk price range to $6.80kg/MS, up from $6.40,while retaining its current +/-50c per kgMS range.

It’s  a  shot  in the  arm   not  just  for  the   co-op’s  farmer-suppliers  and the  country’s  rural  regions  but also for  the national  economy  as   it   strives  to  recover  from the impact  of the Covid-19 pandemic.

At  a  $6.80  milk price    more than $10bn  will flow   into regional  NZ.

Fonterra  has  found  stronger  demand from  China,  particularly  for  wholemilk powder   which  is a big  driver  of the  milk  price.    

This   will  be  encouraging for    other    milk processors    including  A2 Milk    whose  shareprice has been marked down  by investors  worried  about  demand  for  infant   formula  in  China. Continue reading “NZ economy gets a shot in the arm (if all goes well) from Fonterra’s revised milk price forecast”

Dairy data should delight Covid recovery monitors while discouraging industry detractors

Farmers  are   back in the  frame  as  the  backbone  of  NZ’s  export economy,  after the  Covid-induced collapse of  the foreign  exchange earning capacity  of the  tourist  and international education industries.  But  it  is not  only  the  rural  industries themselves which  are  scrutinising bulletins  on  the  prices  being  earned  abroad  for  commodities.  Those data have  become a  vital  item  for  New Zealanders eager  to  monitor the recovery of an economy  battered  by a  one-in -100  year  event.

This  week  the  ANZ  reported  its  world commodity  price  index   had  eased  0.2%  in September as lower dairy and meat prices were largely offset by stronger prices for logs and fruit.

In local currency terms the index fell 1.3% as the NZ$ strengthened by 0.6% on a trade weighted index  basis during  the  month.

Hard on the heels  of those figures came   the  results   of  the latest  Fonterra  global  dairy   trade auction  where  the   average  price   strengthened  to  $US3143  a  tonne  and  wholemilk  powder (which  plays a  significant  role  on  Fonterra’s payout to  suppliers)  rose  1.7%  to  $3041  a  tonne.

Volumes sold were about the highest offered in 2020 and the most bidders of the year showed up for the  auction. Butter, up 8.4% to  $US3561,  rebounded  from  the previous  auction. Continue reading “Dairy data should delight Covid recovery monitors while discouraging industry detractors”

Fonterra sells farms in China to reduce debt and get back to basics

Dairy  giant  Fonterra  has  scooped in  $555 million by selling  its   China  farms  and is now aiming to unload   its yogurt business, a partnership with Nestle, located in Brazil, as  it  pursues  its  strategy of seeking  greater value, rather than volume,  in its  business.

Fonterra CEO Miles Hurrell   conceded  the  China  farm  business

“ … has  been a tough journey for us along the way, we had to take an impairment to that asset in 2019 and again in 2020 so certainly they haven’t been as operationally effective as we would have liked.  That said, we have made significant progress of late and that’s put us in a better position to sell these assets.”

Fonterra  is  expected    to  use   the proceeds to pay  down  debt  which under  Hurrell’s  watch  has  already been trimmed  in the past year  to $4.7bn  after  peaking at  $7.1bn.  His  turnaround  strategy has been to get back to  basics, dropping the  concept of  building a global  milk pool to  focus instead  on the value of  NZ-produced  milk.

It’s  a  strategy  that is  being closely  watched  by  Fonterra’s farmer-suppliers  as  the  co-op drives  towards  higher  profitability  and  shakes  off  the   nasty  losses  it  made  in 2018  and  2019.

The  co-op is the world’s  sixth- largest  dairy  company   by revenue,  but  many  among its  farmer-owners  believe  it has yet to  fulfill  its potential.  They  question   why  Fonterra   launched into so  many unprofitable   investments  abroad.

Hurrell  defends  the  China   farms   venture.  In retrospect, he  says, the investment was a good move.

It was always part of our plan to support the local dairy industry in China, that was certainly the intention going in… it wasn’t the intention to lose money but the strategic intent still remains”.

The proceeds would be used to pay down debt.

We still have some work to do around our balance sheet so it’s intended at this point to pay down debt and focus on that in the near term.”

He  contends the sale of the farms will allow the co-op to prioritise the areas of its business where it has competitive advantages.

“For the last 18 months, we have been reviewing every part of the business to ensure our assets and investments meet the needs of the co-op today.  Selling the farms is in line with our decision to focus on our New Zealand farmers’ milk.  China remains one of Fonterra’s most important strategic markets, receiving around a quarter of our production.  Selling the farms will allow us to focus even more on strengthening our food service, consumer brands and ingredients businesses in China.

“We will do this by bringing the goodness of NZ milk to Chinese customers in innovative ways and continuing to partner with local Chinese companies to do so. Our investment in R&D and application centres in China will support this direction.”

Fonterra is selling  the China farms for a total of $555m (RMB 2.5 billion), after successfully developing them alongside local partners.   Inner Mongolia Natural Dairy Co Ltd, a subsidiary of China Youran Dairy Group Limited (Youran), has agreed to purchase Fonterra’s two farming-hubs in Ying and Yutian for $513m.

Separately, Fonterra has agreed to sell its 85% interest in its Hangu farm to Beijing Sanyuan Venture Capital Co., Ltd. (Sanyuan), for $42m. Sanyuan has a 15% minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest.

Hurrell says that in building the farms, Fonterra demonstrated its commitment to the development of the Chinese dairy industry.

“We’ve worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry.

“We don’t shy away from the fact that establishing farms from scratch in China has been challenging, but our team has successfully developed productive model farms, supplying high quality fresh milk to the local consumer market. It’s now time to pass the baton to Youran and Sanyuan to continue the development of these farms.

Completion of the sale, which is subject to anti-trust clearance and other regulatory approvals in China, is expected to occur this financial year.

The  question now  being   asked   is whether  Fonterra   can   unload  its other major  Chinese  investment   in the  infant  food  company,  Beingmate,  which cost  the  co-op $755m  but has had to be written  by  more than $430m.

Decarbonisation is one option for Fonterra bosses to consider as they strive to make the co-op a national champion

Rabobank’s  latest   survey    of farmer   confidence found dairy farmers more upbeat about the fortunes of the agricultural economy  than meat and wool  producers.  Dairy farmer net confidence rose to -29% (-33% previously).

Improving demand is the key reason for optimism among  dairy farmers. That’s  largely  because global demand for dairy has held up well during the course of Covid-19 with many consumers opting for simple, familiar, stable food products such as dairy during the pandemic.  And   since the last survey,  Fonterra has  lifted  the lower bound of its farmgate milk price pay-out range for the 20/21 season.

Then there is  Fonterra’s  performance  under   the  stewardship of  Fonterra chief executive Miles  Hurrell,    who  has succeeded  in  turning  the  co-op’s fortunes  around   after  two   grim  years.

Now,  as  the  global  economy  stumbles  into  a  pandemic-induced  recession,  the  dairy  industry  more than  ever   has   become   the  main prop  in sustaining  NZ’s  export capacity.

The  question  is   whether   Fonterra  – as  the  major  player  in  the  industry  – can accelerate   the  progress  it  has  recorded  under  Hurrell’s  leadership. Continue reading “Decarbonisation is one option for Fonterra bosses to consider as they strive to make the co-op a national champion”

A cheering result from Fonterra, but there are challenges ahead

Fonterra CEO Miles Hurrell says 2019/20 was a good year for the co-op, with profit up, debt down and a strong milk price.  The  result,  a profit   of  $659m, may have  brought a  cheer   from the  co-op’s  farmer-suppliers and  Hurrell  deserves  a cheer, too, for   succeeding  in  turning around  the  fortunes of the  co-op,  after two  years  of  losses.

“We increased our profit after tax by more than $1bn, reduced our debt by more than $1 billion and this has put us in a position to start paying dividends again,” he says.

“I’m proud of how farmers and employees have come together to deliver these strong results in a challenging environment. They have had to juggle the extra demands and stress of COVID-19 and have gone above and beyond. I would like to thank them for their hard work and support.”

Fonterra  settled  on a  milk price for the  season  just  past  of  of  $7.14kg/MS—-one of the  highest on record—and  is  maintaining the current forecast  for the  current  season  within  the  range of  $5.90-$6.90.

Turnover  was up 5%  at  $21bn, equating  to 6.8%  of  NZ’s  GDP—with  $11bn returned  to  suppliers.

Not  a  word  out of the  Beehive,  despite the  result  underlining   the  importance  of  the  dairy  industry  to the  national   economy.

But  Federated  Farmers’  Andrew  Hoggard  speaks for  the rural  community  when he says  “There’s good, positive  momentum going  forward…it  will  lift   a lot of people’s spirits”.   Continue reading “A cheering result from Fonterra, but there are challenges ahead”

It’s been a great year for the dairy industry – now let’s see what it has done for Fonterra’s books

Despite  the  turmoil  inflicted  on  global markets,  NZ’s  dairy  industry  turned  in  a  phenomenal performance   for  the  2019-20 season,   with  export  earnings   $709m  ahead of  the  previous  year.  

And  though  the  global  market  is  finely  balanced  at  present,  the  prospect  is  that  the  industry  could  again  be  ahead  of the  pack  in  the  current  season.

Dairy farmers    deserve  the  plaudits  of  the   rest  of  the  country,  even   though  the  present   government    has  gone  out  of its  way  to   clobber  the industry  with  tough  freshwater regulations  designed to  satisfy  “dirty dairying”   critics,  despite the most polluted water  often being  found in  city and town waterways  and harbours. 

With the  loss of  foreign  exchange  from  the collapse  of  the international tourism and education, the NZ  economy is  more than ever  dependent  on the primary sector  to  increase output  for  sales  abroad.

Now,  as  dairy farmers   settle  into  the  new  season, those    who  supply  Fonterra  will be  looking   to the big  co-op  reporting  its  annual  result  on  September  18,    with  confirmation    of  its  final farmgate  milk price  for  the  2019-20  season.  This is  expected to be  $7.15kg/MS. Continue reading “It’s been a great year for the dairy industry – now let’s see what it has done for Fonterra’s books”

It’s the beta-casein and premium product that makes a big difference between a2 Milk and Fonterra

Investors  this week took  the  phenomenal result  for a2 Milk   in  their  stride, but  it  may have produced  a few blinks  round   the   nation’s  dairy farms,  particularly  with  the  farmer-suppliers  of  Fonterra. 

Take – for example – a2 Milk’s  earnings  per share  of  52.39c  and contrast them with Fonterra’s 17c per share  in 2019,  or  its  net  profit  of $385.8m   versus  Fonterra’s loss  of $605m.

There  are  other  mind-blowing  figures  from  a2 Milk: total revenue  of  $1.73bn, up  32.8%; ebitda of $549.7m, a  rise of 32.9%;  and operating cash flow of $427.4m. Not to  mention  a  cash  mountain  it has  built up of  $854.2m.

As  one commentator has  put it, a2 Milk with its record growth intrinsically linked to the China market, is a success story   New Zealanders should both celebrate and learn from.

Even  its  Dunedin founders through its  early  years  from 2000,  Dr  Corrin McLachlan  and  Howard  Paterson, might be  astonished  at  its  latest  result.

Continue reading “It’s the beta-casein and premium product that makes a big difference between a2 Milk and Fonterra”