The pros and cons of PKE

In recent weeks, PKE has been in the spotlight.  The key reason for this has been the decision by Landcorp to phase out its use on the Landcorp farms. This has brought back into focus Fonterra’s 2015 recommendation to farmers to only use 3kg per cow per day. It has also given a platform for various other groups to promote their own perspectives.

Amongst the environmental groups, there are two polar perspectives. Greenpeace says we should stop using all PKE. However, the World Wildlife Fund (WWF) says that palm oil production is OK as long as it sustainable, and certified by the Roundtable on Sustainable Palm Oil (RSPO). Continue reading

Posted in Agribusiness, Dairy, Fonterra, Uncategorized | 22 Comments

The snow has come again

Every year we all talk about the weather and how fickle it is.  This year is no different. In most parts of the country, June and July were unseasonably warm.  Where I am in Canterbury, winter grass growth has possibly been higher than ever before.  Grass covers at the start of August were excellent.

In contrast, last year was one of the coldest winters on record, with many South Island farms getting no net growth in June and July.   That year, there was a string of southerlies, whereas this year warm winds were blowing over the Alps.

Now in August we are getting our comeuppance. Brutally cold southerlies have been coming in from the coast, with heavy snowfalls against the foothills, and in some places extending out to the coast. The same systems, or modifications thereof, have then been slamming into Hawkes Bay and the Central North Island. Continue reading

Posted in Agribusiness, Dairy, Meat Industry | 1 Comment

Nervous times at Silver Fern Farms

Silver Fern Farms announced last week to its farmer suppliers that it now expects no more than a breakeven return for the year ending 30 September 2016.  This should focus the minds of its farmer shareholders, who vote on 12 August as to whether or not Silver Fern Farms should proceed with the partial takeover by Shanghai Maling. 

The disappointing projected financial outcome – which could yet get worse – reinforces the notion that Silver Fern Farms lacks the necessary financial resilience to go it alone. There is increasing risk that without completion of the Shanghai Maling buy-in, that Silver Fern Farms will lose the support of its bankers and be placed in receivership. That is not an attractive option, for what has in recent years been New Zealand’s largest meat processor. Continue reading

Posted in Agribusiness, Meat Industry | 4 Comments

Reducing the seasonality in Kiwi dairy systems

I have previously written how New Zealand’s seasonal dairy industry aligns nicely with long life commodity production but does not align well most value-add products.  In contrast to New Zealand, in nearly everywhere else in the world – apart from Ireland, and some areas in Australia – the cows are milked for 12 months per year.  This is driven by the needs of consumer markets. So if New Zealand wants to capture an increasing share of the branded markets, it will need to figure out how to make non-seasonal production systems work in our pasture-based environment.

It definitely won’t be a case of everyone moving to non-seasonal production, because there will always be a place for long-life commodities. But we do have to give serious thought as to how we can diversify away from such high reliance on whole milk powder (WMP). This WMP is essentially a product that is consumed in developing rather than developed countries. Currently, China is by far the dominant WMP consumer, and also now the largest WMP producer, but in time they are likely to move away from WMP to more consumer-focused products. Continue reading

Posted in Agribusiness, Dairy | 1 Comment

Shocks versus structural change is the big dairy question

Right now, the focus of almost every New Zealand dairy farmer is on survival. It is a time when cash is king.

In the short run, it is all about turning cash inputs into milk. There can be no argument that this means using all available grass, but it also means not having hungry cows. Each farmer will find his or her way of achieving this. It may be through decreased stock numbers or it may be through appropriate supplementation to match feed deficits. In times like these, it is more important to travel the chosen path efficiently rather than to jump wildly from one path to the other.

Despite the focus on survival, it is also a good time to be thinking strategically. At the industry level, have we got it right?  In regard to what we are currently experiencing, how much of it is from one-off shocks and how much is due to structural change within global markets.

Short-term shocks eventually resolve themselves, as long as the industry is operating from a position of fundamental strength. But to the extent that the global situation reflects global structural change, then simply continuing as we have always done will not be good enough. Continue reading

Posted in Agribusiness, Dairy | 8 Comments

Will losing guaranteed milk supply stir Goodman Fielder to action?

Since the formation of Fonterra in 2001, Goodman Fielder has always had a guaranteed supply of 250 million litres of Fonterra milk.   MPI Minister Nathan Guy is now proposing that the time has come for Goodman Fielder to fend for itself.

For the last fifteen years, the major milk supply chain in New Zealand has comprised one supplier (Fonterra), two processors (Fonterra and Goodman Fielder) and two supermarket chains (Foodstuffs and Progressive).  It has indeed been a cosy arrangement. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 5 Comments

Back to the drawing board for Fonterra governance

The key message from this month’s failed governance restructure vote is that Fonterra’s directors and the Shareholders’ Council must go back to the drawing board. Farmers do want change, but nothing can happen without 75% support from voting members.  So where to from here?

 Calculated over the total membership, approximately 37% of the voting electorate said ‘yes’ to the proposals, 21% said ‘no’, and 42% sat on the sidelines. Those 42% on the sidelines were either confused, disenchanted, or distracted by other events.

It is hard to believe that any of Fonterra’s farmers could consider themselves to be disinterested. This is because, unlike most investors who have diversified holdings across many companies, Fonterra’s farmers are totally dependent on Fonterra.   It is a very special relationship. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 4 Comments