Budget pumps $1.3bn into railways but almost forgets farmers while Fonterra delivers the economy-boosting goods

Farmers    who  believed   Labour  when it  said  it wanted  to  double  agricultural  exports may have experienced  a  sense  of  disillusion as  they  absorbed the  messages  of  Budget 2021.  While  the  government  is  allocating $1.3bn to modernise rail infrastructure and  build locos  and  wagons in Dunedin,  it  could find  only  $62m  for  agriculture.

Someone  has  calculated  that  the country’s 40,000 farm businesses, if they shared the $62m, would each receive $1550 or $29 a week (less than the ongoing minimum benefit increase).

This  comparatively meagre  sum   is  to be  applied as  follows:

  • $37m towards a national integrated farm planning system for farmers and growers.
  • $24m towards agricultural greenhouse gas mitigation research and development.
  • $900,000 to collect vital statistics on agricultural production, such as greenhouse gas emissions.

Critics may  conclude   the small outlay for agriculture reflects Agriculture Minister Damien  O’Connor’s influence in Cabinet.  Others  may  see it as  evidence  of the traditional antipathy of Labour MPs  towards  farmers. Continue reading “Budget pumps $1.3bn into railways but almost forgets farmers while Fonterra delivers the economy-boosting goods”

Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)

New Zealand’s giant dairy co-op, Fonterra, is back in its leadership role  in the  country’s  key  export  industry, feeding  a  revival  of  optimism among its 10,000  farmer-owners  as  it  reports a  “positive”  half year  result  alongside a  strong forecast  farmgate milk price.

Fonterra  CEO  Miles  Hurrell summed  it  up  neatly when he said :

“Despite  the major impact Covid is having around the  world…it’s  during these times you really can see  what makes our co-op special”.

  Hurrell  himself  can take a  fair chunk  of the  credit  for turning  the co-op’s fortunes around,  after the previous  executive regime cost it  billions.

He  said  the  co-op  had a “great” first half. Although revenue was down slightly to under $10 billion, earnings from China rose  by  more than a third. Continue reading “Why farmers are whooping a hurrah for Hurrell (and why the rest of the country should be cheering too)”

Fonterra milk price forecasts give a fillip to farmers and the regions – the co-op has become an NZX favourite, too

Fonterra has  confirmed  what  most analysts  had  been predicting and lifted its 2020/21 forecast farmgate milk price range to  $7.30 – $7.90 kg/MS, up from  $6.90 – $7.50. This should  send a  further surge of  confidence  across  NZ’s  rural regions, hopefully in  a  wave  strong enough to encourage  farmers  to plan to  increase production  next  season.

As  a  result  of  the  higher  payout, the co-op  will be  pumping $11.5bn  into the  rural economy, well ahead of the $10bn predicted  last year. Although  farmer-suppliers  to Fonterra  are paid off   the mid-point  $7.60  of the new range, most analysts  believe the final payout will reach $7.90.

That  should  ensure a  handsome  return  for most  suppliers,  whose  cost  of  production averages  around $5.80-$6 kg/MS—and for the  highly  efficient, at below $4, an even   better one. Continue reading “Fonterra milk price forecasts give a fillip to farmers and the regions – the co-op has become an NZX favourite, too”

Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price

Dairy prices increased by 3.9% across the board at the latest Fonterra global auction. The lift followed rises of 1.3% and 4.3% in the December auctions which took dairy prices to their highest level in 11 months, defying those analysts who believed Covid-19 had disrupted dairy markets.

In the latest auction WMP rose 3.1% to $US3,300 a tonne, its highest level in 12 months. Other significant movements included a 7.2% lift in the price for butter to $US4,452 a tonne.

ANZ agricultural economist Susan Kilsby said the auction results came as a great surprise and as a very positive start to the new year. She contends it strengthens the likelihood Fonterra’s milk price payout this season will be closer to the higher end of the range Fonterra is currently forecasting.

The big co-op in December narrowed the range to $6.70/7.30kg/MS.

So what are the chances, if the trend evident in recent GDT auctions continues, of the payout going even higher? Continue reading “Here’s the chance for Fonterra to play a leadership role and spur the others with its milk price”

Dairy farmer confidence is improving but there are challenges in export markets

The dairy industry  has  recovered some  of  its  confidence, as  its  role  as the  backbone  of  NZ’s  export structure has  moved  into sharper  relief  in the  Covid-19  pandemic.

Rabobank’s  latest quarterly survey of  farmer confidence says  it  has improved from  minus 32%  to minus 23%, with  demand  for  NZ dairy products  holding up well  since the  previous survey  in September.

The  dairy  industry  over  past  seasons   has  been the  target  of  urban critics  for  so-called   “dirty dairying”, climate  change  warriors  who want a reduction in methane emissions,  and the  government, which is implementing  new  freshwater regulations. Internally the industry was  stricken  with  the  financial  woes   of   Fonterra.

Even  now  as the  industry absorbs the evidence  for greater  confidence,  it   is  not  without  strategic  concerns.    Most  of  these  are focused  on  its  Chinese markets  following  the  problems being encountered  by Australian exporters in the  wake  of retaliatory action by  the Chinese  government. Continue reading “Dairy farmer confidence is improving but there are challenges in export markets”

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”

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”