When the Clark-Cullen government formed Fonterra, they formed a Leviathan to stand astride its global markets and take on the might of the European and U.S. giants. That Labour-led government had ambition for New Zealand. Brian Easton noted in a 2016 paper to the Fabian Society, “It was a modernizing government, it was concerned about adapting the economy for changing social technological, and external circumstances.” Forming Fonterra was its largest commercial leadership move.
The Ardern-led government now faces an entirely different Fonterra. Its expected loss this year is $590-$675 million, and its total asset write-downs are $820-$860 million. Its New Zealand consumer business is in intensive care, and its international outreach now sold off or euthanized in many key markets.
Fonterra is a business formed by Labour-government command, and it is up to a Labour government to fix it. And yet government leadership about Fonterra is near absent.
By a long, long way, Fonterra is the most important single business we have on the world stage. Yet I’ve not seen our Minister of Finance mention Fonterra once in either speech or media release. Why the failure of government leadership over Fonterra’s future?
One way to approach the Fonterra problem is to throw blame around. Brian Gaynor’s NZHerald article of August 17 rightly goes back to the key points in submissions that opposed its formation in the first place, including the Commerce Commission. A thousand I-Told-You-So’s are warranted, and as well as being therapeutic they have some applicable lessons. He also rightly runs the counterfactual of the success of Kerry Group of Ireland against Fonterra.
The one minister on this government with any apparent interest in Fonterra is Damien O’Connor. He is in charge of reforming DIRA, the Dairy Industry Restructuring Act that brought Fonterra into being. The proposals for reform are timid half-measures that in no way address the scale of the Fonterra crisis now.
Others, particularly inside MFAT, will caution against strong actions in support of Fonterra because of the likelihood of tripping WTO and CPTPP rules against states assisting specific companies. That attitude consigns state intervention to the car wreckers yard of historical economic mechanics, and this state simply doesn’t function like that.
Perhaps Arderns’ government is merely shy in confessing the love it shows Fonterra. Indirectly Fonterra is supported by deep research partnerships with our state universities, and more broadly into pastoral growth research in Landcare and others.
Fonterra’s farmer suppliers are also supported by the massive government M. Bovis eradication programme investment. It has renewed its effort and capacity in biosecurity.
Government business Kiwirail also services nearly all it processing facilities, and is preparing to connect the few not on rail lines.
Then there’s the government effort to restore water quality – a massive gift to Fonterra’s long term international reputation.
Another huge public commercial gift by this government to Fonterra has been to not price water. Or even regulate the price of water. Cheers! To be honest the above is Business As Usual. This Fonterra is not Business As Usual. This is the rapid diminishment of our largest global exporting business, which we desperately need. This government must lead Fonterra up, or Fonterra will keep pulling us down with more force than any other private entity.
For all that public investment, this government doesn’t even have the gumption to get Fonterra to show the citizen taxpayer what it is getting back for it. They must as a minimum hold them to account.
The decline of Fonterra is too big for this government to ignore. Fonterra has led the largest sector of our exporting economy into a vicious circle of economic underdevelopment. It has continued to produce technologically mature products subject to diminishing returns, generating tiny productivity increases. Massive turnover, tiny profit, shrinking dividends to reward the business owners, year after year after year, and accelerating.
Its farmers have had such weak Shareholder Council leadership that it is time they were stacked deep into into a silage heap – at least there they would generate some heat. Farmers have also seen their business productivity increases taken out as lowered prices. Hence very little increase in their incomes or in real wages for their staff.
Fonterra is dragging New Zealand down, faster and faster.
Yet this is not a government against economic intervention at the company-level scale, as the business beneficiaries of the $3 billion Provincial Growth Fund will attest. The principle of cash-up and micro-level government intervention is set.
Apart from PGF, we’ve seen whole-of-governemnt commercial intervention in recent years in South Canterbury Finance, Sky City, Auckland, Christchurch, Rugby, Kaikoura, and more.
So non-intervention in Fonterra is inexcusable.
It’s as if this government is afraid of maturing. Government engaging in business is a bit like marriage. One gives up some sovereignty for some other benefits. Pretending you can enter marriage or business and not compromise your independence is a romantic illusion. This economy is flattening, and Fonterra is the largest single commercial lever in our future productivity and prosperity, which government is failing to grip.
They’re fine operating influence-regimes inside Wellington entities like the Reserve Bank or Wingnut Films. Outside of that they appear happy to just keep Shane Jones busy. They are currently hard pressed to deliver on even their most central policy areas, and are now experts at turning small issues like Ihumatao and prisoner rights into large catastrophes. Fonterra is New Zealand’s largest commercial crisis since the BNZ, but it appears the Ardern government is too immature to deal with it.
At the moment, it has no cross-government response to recovering Fonterra from a deep dive, let alone a plan for a post-crisis Fonterra and its place in New Zealand. It’s about as far from that as Fonterra is itself. Yet right now, New Zealand and Fonterra cannot live without each other, are deeply invested in each other, and with neither admitting it. It’s like they’re trapped in a Bronte novel.
Fonterra is the most important unfinished business of the Clark Labour government. So far the Ardern government is dithering, unable to join its own governmental dots, unwilling to state the crisis that it is, simply unable to lead Fonterra on behalf of New Zealand as they must.
Leviathan, meet crisis.