Business

Competitors of Fonterra Cooperative Group, the country’s largest dairy processor, claim there’s still insufficient competition to deregulate the industry. In submissions to the Commerce Commission, which is undertaking a government-ordered review of the industry’s competitiveness, rival processors either want the status quo or the regulations tightened. Farmers lobby group, Federated Farmers, says the Dairy Industry Restructuring Act 2001(DIRA) will need to be amended if it’s retained long-term. Fonterra’s submission generally supports the process and methodology suggested in the commission’s consultation paper and says it will comment separately on substantive issues raised by the review. The cooperative said the commission should consider the full period since the DIRA came into effect rather than the most recent five years, and that it was particularly important to examine the entire “life cycle” of entry and growth of independent processors. Among the issues under investigation is whether the DIRA competition thresholds have been met. The current threshold frees Fonterra from its obligation to supply milk to smaller competitors once at least 20 percent of supply is taken by competitors in both the North and South Islands. Fonterra currently has an 86 percent share of the nation’s milk pool, down from 96 percent when it was set up in 2001. In its submission, Westland Milk Products said it had successfully attracted milk supply from dairy farm conversions but had been less successful in wooing existing Fonterra suppliers to switch. Only a quarter of its Canterbury shareholders are ex-Fonterra and it said Fonterra’s actions to secure supply are contrary “to the purpose and principles of the Act”. “We are concerned that actions employed by Fonterra in response to competition for milk supply at the farm gate demonstrate that Fonterra has used, and has the potential to continue to use, its position of dominance to restrict competition […]

There are good lessons to be drawn on from the global financial crisis (GFC) for dairy farmers in managing volatility and getting the most from their banking relationship, says Hayden Dillon, Head of Corporate Agribusiness and Capital Advisory for Crowe Horwath.  Major rural banks were expected to support their dairy clients despite many farm budgets indicating negative cash flow positions for the coming year, he said. And post-GFC, banks had undergone significant reforms and were now well-positioned in terms of access to capital.  “It’s critical to note that major rural lenders do not assess the viability of farms based on last year’s or next year’s pay-out,” said Mr Dillon. “Banks are acutely aware of the market they operate in, which will sometimes see their customers run cash deficits due to volatility.”  Because of that, the banks used averaging, known generically as a “sustainable year,” to assess a farmer’s ability to service and repay debt.  With that in mind, farmers should pay attention to three key themes to get the most from their banking relationship, said Mr Dillon. These were:   Understanding that their normalised costs are, and being able to justify those costs to their banker. Having accurate information on hand and a process to make decisions quickly and effectively when faced with major events, such as drought, flood, change in milk price, or in the cost of inputs. Understanding the potential ramifications of their banker making assumptions on the farmers’ behalf, as opposed to providing assistance and advice.  In good pay-out years farm costs invariably increased, but when things got tough, farmers were also good at tightening their belts, said Mr Dillon. “Unfortunately for those with leverage it’s not good enough to just say you will cut costs when talking to your bank.”  While banks would draw considerable comfort from […]

Texas based food and beverage company Dean Foods is keeping quiet on Australian media reports linking it to the proposed takeover of A2 Milk Co. The Australian Financial Review’s Street Talk column yesterday named Dean Foods as the second party in a consortium seeking to buy A2 Milk, providing an alternative route for the company, which markets milk with a variant protein, to expand in the US. The AFR speculated the bid could be as much as $2 a share, a massive premium to A2 Milk’s share price of 57 cents before potential takeover became public. Dean Foods spokesman Jamaison Schuler told BusinessDesk in an emailed statement that company policy is to “not comment on market rumors or speculation about our company.” A2 Milk shares climbed to a year high 77 cents today, and were recently up 7 percent at 76 cents. On Monday, the company said it’s facing a takeover from two unnamed parties, one of which was later revealed as its cornerstone shareholder, Freedom Foods. Initial reports speculated New Hope Group was the other party in the deal, due to the Chinese firm’s existing relationship with ASX listed Freedom. Freedom Food shares, which are majority owned by the Perich Group, have gained 7.1 percent since the A2 Milk announcement, closing at A$3 on the ASX yesterday. A deal would be contingent on the consortium, which includes an “unnamed leading international liquid dairy milk company”, undertaking due diligence. It also has a restriction on A2 Milk changing the number of shares on issue, effectively scotching a planned equity raising that has been in the pipeline. A2 Milk’s board is seeking further information in order to evaluate the proposal before updating the market and said no further comment would be made at this time. Freedom Foods is represented on A2 […]

New Zealand’s specialist land-based university today announced the appointment of Dr Alan Renwick as Professor of Agricultural Economics to further strengthen Lincoln University’s teaching and research. Dr Renwick is currently domiciled in Dublin, Ireland, where he is Professor of Agricultural and Food Economics at University College Dublin (UCD). He will join the Lincoln University team later this year. “Dr Renwick has exactly the background we need to further strengthen Lincoln’s teaching and research in agricultural economics, and I am personally delighted with the appointment. Alan spent many years at the University of Cambridge in the Department of Land Economy, before heading the Scottish Agricultural College’s Land Economy and Environmental Research team,” says Deputy Vice-Chancellor, Scholarship and Research, Stefanie Rixecker. “We have managed to secure his skills from his current role in agricultural and food economics at UCD, where he is teaching into their BSc in Food and Agribusiness Management, and their Master’s in Food Business Strategy, as well as supervising research students and undertaking his own research in this field. His background will complement the team within Lincoln in an area that is key to this University, and to New Zealand as a whole.” The role of Professor of Agricultural Economics sits within Lincoln University’s Faculty of Agribusiness and Commerce. This year the Faculty has announced the appointment of Crawford Falconer of the OECD to the Sir Graeme Harrison Professorial Chair in Global Value Chains and Trade, and will see the appointment of another two professors over the coming months. “Lincoln University has been through a period of remarkable change in the last couple of years,” says Dean of the Faculty of Agribusiness and Commerce, Professor Hugh Bigsby, “and the appointment of Dr Renwick to this senior academic role signals another step-change in the development of our core areas of […]

The government announced today that $500,000 would be made available as a one-off funding boost to support farmers dealing with extreme weather and volatile pricing. Beef + Lamb New Zealand chairman, James Parsons welcomed the news. He said sheep and beef farmers were under pressure from prolonged drought conditions, particularly in the northern South Island. “Inevitably farmers are under immense pressure when they have thought ahead and made the best decisions around stock and pasture management on their farms. Some of our farmers have exhausted all their grazing options – they’ve sold down stock and most are below their capital stock numbers. “They’re in a really tough situation and are worried about the impacts ahead as spring approaches.” Parsons said it was good to see the government boosting support for mental health services in the regions – especially the focus on prevention and early intervention. He urged farmers to look out for each other too: “Keep talking to friends and neighbours and don’t be too proud to ask for some help.”

PGG Wrightson, the rural services firm controlled by China’s Agria Corp, lifted its annual earnings outlook as second half trading comes in ahead of expectations, but warned weak farmer confidence may weigh on future sales. The Christchurch based company expects annual operating earnings before interest, tax, depreciation and amortisation to be between $66 million and $69 million in the year ending June 30, above the February forecast for earnings between $62 million and $68 million. That in itself was an upgrade from previous guidance to beat last year’s earnings of $58.7 million. Wrightson is trading ahead of expectations, with strong seed sales across New Zealand and Australia, despite “challenging conditions” in the domestic market, it said in a statement. Still, dairy prices have dropped, hitting New Zealand’s largest export commodity and denting farmer confidence, while a dry summer had also been felt in some regions. “The improving PGW results we are seeing are a direct result of the hard work we’ve put into our business over recent years,” chief executive Mark Dewdney said. “Looking ahead, reduced farmer confidence in dairy and lamb is creating more uncertainty than usual regarding spending intentions for next season. This may result in farmers reducing expenditure which will potentially impact our financial performance.” The Reserve Bank yesterday cut interest rates as falling dairy prices dragged down the nation’s terms of trade more than expected, and has previously cited the sector as a key risk to the nation’s financial stability given the industry’s concentration of high indebtedness. In February, Wrightson reported a 47 percent gain in first half profit to $19.7 million in the six months ended Dec. 30, beating analysts’ expectations. Operating Ebitda climbed 51 percent to $33.6 million and revenue from continuing operation increased 3.1 percent to $654.7 million. Agria first invested in Wrightson […]

The Ministry for Primary Industries is predicting steady export growth over the next four years in its latest Situation and Outlook for Primary Industries, released today. MPI Director of Sector Policy, Jarred Mair, says the latest Situation and Outlook for Primary Industries highlights the resilience of New Zealand’s primary industries and their growth prospects, and provides a positive outlook through to 2019. “For the year ending June 2015, we expect primary industries total export revenue to be $35.2 billion, down 8 percent from 2013/14. This is despite substantial expected declines in export revenue for dairy (22 percent decrease) and forestry products (10 percent decrease). We then expect a return to growth with a 1.5 percent increase in export earnings for 2015/16, to $35.7 billion. “Longer-term the outlook is for steady growth across all sectors. Total export revenues by June 2019 are expected to be $41.3 billion – a 17 percent increase on this year. “This growth will be underpinned by income and population growth in China and Southeast Asia. Steady growth in other key markets will further bolster growth. For example – expectations of sustained recovery in the US housing market bodesw well for higher-value forestry exports.” “The last 12 months have been an example of the benefits of having a diversified production base and highly adaptable export companies. It was a tough year, with volatility in overseas markets for some of our key export commodities, and challenges to production from climatic events such as drought, storms and floods. “China remains our most important market for primary industry exports. Demand drove dairy prices high heading into 2014, and its construction boom helped lift forestry export earnings. However, excessive inventories and slowing construction have reversed these price gains for the 2015 year. Volatility in dairy markets has been further exacerbated by […]