Rattling Fonterra’s governance is not enough

Late last year, Fonterra’s farmers rattled the cage by voting for a change in governance rules. However, the voting majority was insufficient to change the rules. Fonterra’s Board has now responded with its own proposals for new governance structures.

To me, the new proposals look like a continuing meander towards corporatisation, without recognition of the special features of a huge co-operative conglomerate like Fonterra. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 8 Comments

EU ramps up dairy production again

The EU has now released dairy production statistics for February 2016 and from a New Zealand perspective the news is all bad. Daily milk production has increased 6.5% from January to February. Some increase was expected – February is always higher than January on a daily basis – but the extent of the increase is a surprise.

The combined January and February production is up 7.4% from last year, and February production, once adjusted for the leap year, is up almost 10% on a daily basis from January last year.

There are some glimmers of hope in other parts of the world, and I will come to that later in this article. First, more about Europe. Continue reading

Posted in Dairy, Fonterra | 4 Comments

Dairy prices are not predictable

In recent weeks, the news media has been reporting wildly opposing views on short term dairy prices.

ASB’s Nathan Penny has been predicting a 2016/17 payment that will start with a ‘6’. In contrast, Westland’s Chair Matt O’Regan and CEO Rod Quinn are saying that they see ongoing gloom for up to two years. Rabobank see improvement but not until 2017. And Fonterra’s John Wilson has almost apologised for past failures with his acknowledgement that predicting prices is indeed difficult. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 2 Comments

America’s mega dairy farms

In a recent article, I wrote that there are four big questions for New Zealand to consider when assessing its future positioning as a dairy producing country. On the supply side, those big questions relate to competition from the EU and the USA.

In the immediate future, our key competition on global markets will come from the EU. I have already written about that. But in the longer term, the potential power of the United States as a major exporter cannot be ignored. And so it is on the United States that I will focus here.

The US has about four times as many dairy farmers as New Zealand, and produces about four times as much milksolids. So that suggests that the average American farm is of about the same size as in New Zealand. Continue reading

Posted in Agribusiness, Dairy, Uncategorized | 2 Comments

Understanding European Dairy

In working out the long term positioning for the New Zealand dairy industry, we have to ask ourselves four big questions:
• What will happen in China?
• What will happen to oil prices?
• What will happen in America?
• What will happen in Europe?
In this article I will focus on Europe.

The need to shed some myths
To understand the fundamental changes that are occurring in European dairy, we need to first shed some myths. Dominant among these myths is that the European industry only survives because of subsidies. Continue reading

Posted in Agribusiness, Dairy | 2 Comments

Fonterra’s six-month results – good news but some underlying issues

As expected, Fonterra has announced a greatly enhanced six-month profit for the period ending 31 January 2016. The profit of $409 million (NPAT; i.e. net profit after finance costs and tax) is up 123% from the same period in the previous year.

The expected full year profit of 45-55c per share implies an annual profit of about $800 million compared to $506 million for the full year 2014/15.

These figures are all very much in line with expectations . The reason for this is that when milk prices to farmers are low, then Fonterra has low input costs. Accordingly, there is more scope for corporate profit. Continue reading

Posted in Agribusiness, Dairy, Fonterra | 4 Comments

Profits, trust and culture at Fonterra

Within the coming week, Fonterra will release its six-month accounts. There should be plenty of good news there, including profit guidance for the whole year of more than $800 million. The key issue is how will Fonterra spin that story? Continue reading

Posted in Agribusiness, Dairy, Fonterra | 2 Comments