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Fonterra failure and Government failure

Written By: - Date published: 7:38 am, August 19th, 2019 - 95 comments
Categories: capitalism, Economy, farming, Free Trade, jacinda ardern, labour, nz first, Shane Jones, trade - Tags:

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.

95 comments on “Fonterra failure and Government failure ”

  1. Robert Guyton 1

    Rod Oram writes regularly on Fonterra:

    https://www.newsroom.co.nz/2018/02/17/89248/rodoram-how-fonterra-hit-the-wall-in-china

    https://www.newsroom.co.nz/2017/09/30/51025/rod-oram-fonterra-failing-basic-tests

  2. Robert Guyton 2

    Plenty of background, if anyone's interested:

    https://www.rnz.co.nz/…/2018705347/business-commentator-rodoram-dairy-and-emissions

    https://http://www.stuff.co.nz/business/opinion-analysis/77028601/undefined?rm=a

    https://www.radionz.co.nz/national/programmes/ninetonoon/audio/2018655971/rodoram

    https://http://www.stuff.co.nz/business/industries/74199461

  3. esoteric pineapples 3

    I enjoyed the way this article was written

  4. Dukeofurl 4

    "Its expected loss this year is $590-$675 million, and its total asset write-downs are $820-$860 million."

    They are the same thing , not AND.

    Writers confuse the TWO Fonterras as being one . The cash rich COOPERATIVE Fonterra and the funny hybrid that is Fonterra LTD.

    Fonterra Coop has long returned far more money to its farmers ( as a coop thats how it works, returns are based on volume milk supplied) than the dividend side of things ( which is supposed to be quasi public company with shares)

    Ther is absolutely no need to intervene other than keep the dirty dairying farmers under a close watch

    The claim -“Fonterra is dragging New Zealand down, faster and faster” is without foundation.

    The farmers are still getting their milk payouts, unrelated to what side of the ledger the accountants in Auckland move asset values.
    In reality Farmers are well aware of ‘book losses’ to reduce taxes

    • greywarshark 4.1

      Good to get the two Fonterras side of things clear EoU. I wondered if the machinations of free market neo-lib business acolytes would affect the co-operative side of things.

      Co-op behaviour is different than ordinary slash-and-burn business style. The shining light of Mandragon which carries on, not without its own problems, is an example of how we need to look to our own businesses to be able to withstand the problems that ordinary business systems display.

    • Wayne 4.2

      Fonterra, although done when Clark was PM, was really a bipartisan effort having started in 1997. John Luxton wanted a clear separation of the marketing and production more than most farmers would accept. Hence the compromise that is Fonterra.

      Dukeofurl is right, the writer of the article doesn’t seem to know how it all works.

      From the point of view of the farmers Fonterra has been a great success as a commodity producer, taking up all the milk that farmers produce. That in fact is a legal obligation and is what farmers want. In fact that is hugely important to them. It is how they grow and expand. As long as they get a good milk price for all the milk they produce, they are happy.

      However where Fonterra has failed is going upmarket. The incentives are all wrong for that. Not sure how that can be fixed. Maybe entirely separating out the high value products part of Fonterra, though it would need a guarantee of milk supply from Fonterra.

      In short, Fonterra (the co-op) buys the milk from farmers and does basic processing. The high value part is a seperate entity, separately listed and no co-op control. No doubt with substantial farmer ownership, but as ordinary shareholders. With a guarantee that it can buy milk from the co-op. Established with a proper debt/equity ratio so it is not starved of capital.

      This will require government/parliamentary leadership. This has to be done by Labour/National/NZF on a bipartisan basis. Not something for partisan party politics.

      • Dukeofurl 4.2.1

        Fonterra Ltd is still controlled by the Coop Board, whos members vote for directors

        Fonterra Ltd more like a subsidiary as far as the books go

      • Dukeofurl 4.2.2

        Currently Fonterra claims 45% of milk is processed into higher value.

        I presume the rest is either fresh milk or milk powder. The seasonal flood of milk doesnt help to have expensive plants making higher value products for only 5-6 months of the year.

      • millsy 4.2.3

        So what was Luxton's idea?

        (Genuinely interested)

    • Ngungukai 4.3

      Will be Chinese owned shortly IMHO ?

  5. tc 5

    " Ardern government is too immature to deal with it." Well said, If Shane Jones is the answer then WTF was the question

    • Dukeofurl 5.1

      Oh dear …no idea of how coalitions work . NZF is allowed to talk about stuff it wants that arent the 'official government line' as per Coalition agreement.

      "As provided for in the Cabinet Manual, the Parties will “agree to disagree” where negotiated between party leaders, and in such circumstances the Parties will be free to express alternative views publicly, and in Parliament."

      …..agree to identify policies and roles in a way that maintains and promotes the distinct identity of each party.

      which is the same wording with the Greens

      "The Labour and Green Parties agree to identify policies and roles in a way that maintains and promotes the distinct identity of each party."

      • tc 5.1.1

        Thanks for the lecture.

        Doesn't detract from Jones being a troughing buffoon who turns many people off politics as he's always been out for himself.

        Wayne's right in so far as it requires leadership and a bi-partisan approach. Easy to make headlines alot harder to make significant long term progress that benefits NZ.

    • Tony 5.2

      Great rehash of National Party 1981 bumper sticker "if Social Credit is the answer it must have been a funny question" in response to Social Credit election slogan "Social Credit are the answer"

    • Ngungukai 5.3

      Jacindarella and the little [deleted] probably don't have a clue what to do ?

  6. Sabine 6

    This is currently going on the US. Not sure how much the current lot in the white house has to do with it, but dairy farmers are closing shop in huge numbers. One of hte reason mentioned, a world wilde milk glut.

    https://www.dairyherd.com/article/more-2700-us-dairy-farms-closed-2018

    why do i think that dairy farming is essentially the biggest poisioned pill that ever was shoved down the throat of many a populace and their profit obsessed farmers.?

    High loans for dairy conversions, a few good years, oversupply, sell the farm for pennies to hte acre – oversupply, and boom, who will profit now? The banks that still get their money, big agri business that can get its hand on a lot of land cheaply. Some real estate developpers who now don't have to do anywork to create treeless, shrubless, tracts of preferably flat land to build hteir houses no one can afford.

    Fonterra is an issue, but the bigger issue will be the farmers that can't survive and can't change to any other crops for all sorts of reasons and will be homeless, jobless and very very depressed.

    And the saddest thing? We still can't get decent dairy products in our shelves. And the populace can't afford a kilo of butter at almost 16$ kg. Idiocy all around.

    • tc 6.1

      look across the ditch also, Fonterra's exposed all over.
      Murray Goulburn being snapped up by Canada’s SAPUTO, it was Oz’ largest dairying firm.

      Looks like a sunset industry from some angles now.

      • RRM 6.1.1

        LMAO surely you're kidding?

        Until people learn how to survive on air and water, food is never going to be a sunset industry.

        • tc 6.1.1.1

          Dairying is an incredibly inefficient use of land for food production.

          Food will never be a sunset industry however certain methods of food production will.

        • Robert Guyton 6.1.1.2

          "…food is never going to be a sunset industry…"

          No one, anywhere, ever, said it was.

          Concentrate!

    • Dukeofurl 6.2

      US numbers are falling – as they did in NZ from the 1940s- because of consolidation and buying up by corporate farmers , who might own dozens of farms

      https://hartdesign.com/industry-news/dairy-farm-numbers-fall/

      The clue is –

      "Despite the decline in the number of farms, milk production continues to steadily increase 1-2% per year. This increase is attributable to more productive cows due to advancements in genetics, feeding, health, and other factors impacting cow comfort. The number of cows has remained relatively constant between 9.1 to 9.4 million cows since 2006 despite the decreasing number of dairy farms."

      and

      " In 2012, dairy farms with over 1,000 cows produced half the milk in the U.S"

      And those remaining farms are increasingly concentrated in the prime dairying areas – 25 counties

      This is completely at odds to your claims Sabine, especially

      Number of cows is much the same

      Milk production steadly increases by 1-2%

  7. RRM 7

    Because Fonterra is about selling dairy overseas, and the government's support partner viscerally hates dairy farming and international free trade?

    That might be the reason Gracinda never mention Fonterra?

    [Please substantiate these claims or retract. Given that you cannot prove a negative, I could provide a link in which the PM does mention Fonterra, which leaves the second option as your only one. You have until the end of the day – Incognito]

    • greywarshark 7.1

      RRM You hang out with the wrong crowd. The gang you apparently belong to have tendencies that are antagonistic to reason, facts, information. And PM Ardern is not at fault because you do not understand. It is your lack of education beyond the basics of literacy and I suppose numeracy; the condition is called wilful ignorance.

    • Dukeofurl 7.2

      None of your claims can be substantiated . The single one about falling numbers of diary farms isnt much use as a metric when the volume of milk is rising and the total number of cows is stable.

      And where did 'land going for pennies in the acre' come from.

    • Incognito 7.3

      See my Moderation note @ 11:11 AM.

    • RRM 7.4

      "Please substantiate these claims or retract."

      Well, there's "Advantage" writing in thestandard.org.nz on Monday 19th August 2019:

      (Wait, that's the very same post we're commenting on right now! Welp!)

      "So far the Ardern government is dithering, unable to join its own governmental dots, unwilling to state the crisis that it is"

      I would hope http://www.thestandard.org.nz is an acceptable source?

      • RRM 7.4.1

        And how typical that you won't touch my substantive point about the greens visceral hatred of farming and foreign export trade.

        [Corrected a typo in e-mail address that caused the comment to be held up in Auto-Moderation]

        • RRM 7.4.1.1

          Moderation?

          LMAO

          Don't worry, I'll leave you in peace now…

          • greywarshark 7.4.1.1.1

            Querulous and cloth-eared RRM. Too smart and sharp for us IHOO, but retiring before he is found out and humiliated. Too much learnings for one day.

        • Psycho Milt 7.4.1.2

          And how typical that you won't touch my substantive point about the greens visceral hatred of farming and foreign export trade.

          Well, given that it wasn't a "substantive point" but an "unsubstantiated claim," the request that you substantiate it was an entirely appropriate response. I notice you chose to leave rather than substantiate it.

          • greywarshark 7.4.1.2.1

            Substantive points are usually cool and factual not all hot and snarky like 'visceral hatred'. That is just mouthing of, you will have to do better than that on here if you want to be taken seriously RRM.(Does RRM stand for radio management of co-channel interference? Is that what you are here for?)

          • Robert Guyton 7.4.1.2.2

            "Well, given that it wasn't a "substantive point" but an "unsubstantiated claim,""

            Elegant!

            I'd have said "idiotic fabrication", but that's not very helpful.

            • weka 7.4.1.2.2.1

              I thought 'unsubstantiated claim' was overly generous, 'idiotic fabrication' seems on the mark.

        • KJT 7.4.1.3

          The Greens knowledge that their families, who are farming, will not have a future, unless economically, environmentally and socially sustainable, farming practice is followed.

          Green are concerned about the future of farm families and their workers.

          As are many farmers, who know that farming depends on looking after the land, soil quality and the quality of farm products.

          Of course, Queen Street corporate capital gains farmers don't give a shit. So long as the whole house of cards lasts until they sell.

  8. Stuart Munro. 8

    It may be in part a legacy of the ABCs – Cunliffe was somewhat involved in the creation of Fonterror, but in his absence there's no-one minding the store. Reports of losses should not precipitate panic however, those were merely the losses of the ill-advised investments that characterize parachute managers, the core business remains as healthy as anything predicated on intensive dairy run by cheap foreign labour can be.

    There are lots of business sectors where the government should be taking a lead, our fisheries consistently underperform their potential by several orders of magnitude and little or no support is provided to reverse habitat and nursery area destruction. A rational intervention requires something in the way of a plan however, and in agriculture planning has been left to the nonsensus of market forces. No doubt they are planning a bail out request even now.

    • Dukeofurl 8.1

      Cough ..cough .. Fonterras problems are Fonterras to solve. Were Fletchers problems the governments too ?

      The M Bovis issue is the major problem on the plate now regarding dairying that has government involvement.

      Not Fonterras bad investments overseas , and inflated book values for parts of its business

      • Stuart Munro. 8.1.1

        "Fonterras problems are Fonterras to solve."

        Excuse me, but Fonterra is basically a producer board in drag, complete with a virtual monopoly. It's not good for our country for it to fail, or fail to develop appropriately for that matter. The government is picking up some of the pieces for Fletchers failures also, notably in Christchurch.

        Fonterra is quite influential on the farming industry, with considerable power to encourage or discourage uptake of technology or environmental responses. It behooves the government to work with Fonterra if possible, to get environmental best practice normalized and so forth, nor can they entirely ignore a trend that would see Fonterror go belly-up.

        We’re a small country and the failure of major commercial concerns is generally accompanied by job and capacity losses. An actual Fonterra collapse would likely collapse vast numbers of farmers who, in the even temporary absence of a buyer, would find themselves overleveraged.

        • Dukeofurl 8.1.1.1

          There is NO chance of the business called Fonterra 'failing' in the sense of collapse.

          The milk price to supplier farmers is what matters , not what bookeeping moving down of the asset value of some items are . This is done every year by the way …its called depreciation.

          Last year they said

          'The $6.79 total payout is the third highest in the last decade. It represents more than $10 billion paid to our farmers'

          This years milk price will vary like it does every year, but the change in book value has almost no effect in the $10 bill or so the farmers will get.

          Its still clear that some commentators cant get their head around Fonterra is still by and large a Cooperative which pays most of its income via the milk solids price

          Also last year 45% of the milk went into 'value added products'

          https://www.fonterra.com/content/dam/fonterra-public-website/phase-2/new-zealand/pdfs-docs-infographics/pdfs-and-documents/financial-results/fy19/Fonterra-Annual-Report-2018.pdf

          Remember $10 bill payout to Farmers is the number to remember , its a river of cash. That a portion of individual farms dont have much margin above their payout because they borrowed too much is not the taxpayers concern

          • Stuart Munro. 8.1.1.1.1

            I can see Fonterror failing completely comparatively easily – a combination of Chinese import substitution with publicity of animal health issue stories along the lines of the winter grazing one, and we might find foreign markets as closed to our dairy products as Asia was to US beef post BSE. Even a significant check on milk fat returns would cause a weeping and a wailing and a gnashing of teeth.

            • Pat 8.1.1.1.1.1

              even easier than that….a comparatively strong currency would be enough to do it

              • Stuart Munro.

                True – and it's a card Asian economies are wont to play.

              • Dukeofurl

                High currency ?

                Already been there in 2011 and 2014 ( US0.85c).. Life carried on , its now around 65c.

                • Pat

                  and what were the international conditions in 2011 and 2014?….this is 2019. Ask yourself why the RBNZ surprised the market and wiped 0.5% off the OCR the other day…and look up the meaning of the word comparative

            • millsy 8.1.1.1.1.2

              Fonterra won't collapse. It's operations will simply be taken over by other parties, it is just a matter of who.

        • Dukeofurl 8.1.1.2

          "basically a producer board in drag, complete with a virtual monopoly"

          Wrong and wrong.

          Producer boards had exclusive offshore sales control Fonterra doesnt.

          Big difference.

          Virtual monopoly doesnt exist, the reverse applies , Fonterra must take all milk offered, while farmers are free to sell to others.

          Indeed Fonterra must supply its competitors with considerable quantities of milk.

          Its clear your understanding of dairying facts is clouded by your anti views. Thats OK theres a lot not a lot to like , but facts are what they are

          • Stuart Munro. 8.1.1.2.1

            "Its clear your understanding of dairying facts is clouded by your anti views."

            Spare me the projection – Fonterra is essentially a statist construct, it didn't form organically in the way conventional businesses do, and it seems to have been larded with some management with little direct experience in either food manufacturing or marketing, not unlike the drones that once haunted producer boards, or the more recent Southern Response, Brownlee's personal statist debacle.

            Because it was made monolithic it never developed the light-footed niche marketing style that characterized Westland Dairy, for example, which might have been a better model, and would have presented some chance of an actual market developing.

  9. SHG 9

    Can we have a followup article from someone who actually understands how Fonterra works?

    • Incognito 9.1

      Do you actually understand how Fonterra works? If so, put your money where your mouth is and submit a Guest Post.

      • SHG 9.1.1

        The SWOT analyses I do for businesses and government entities cost lots of money. The Standard couldn't afford me.

        Hey what’s David Cunliffe doing these days? I seem to recall him being involved in the foundation of Fonterra.

        • Incognito 9.1.1.1

          Yes, TS can afford you; where else would you get that warm fuzzy feeling of being appreciated knowing that you have made a positive contribution for the benefit of many for free? You see, TS doesn’t charge Authors at all and provides a free platform for anyone who wants to comment! Can you handle the love?

          Think of it as a series of your comments bundled into a coherent post of, say, 500 words. If you have time to behave like an armchair critic criticising another armchair critic for being an ignorant armchair critic then you have time to write something more substantial than just booing from the sideline. Just saying.

        • OnceWasTim 9.1.1.2

          If businesses and gummint had any sense, they'd do the SWOTs themselves. All you're doing is providing an 'air' of independence and clipping the ticket while you do so. I hope you include your services on the 'weaknesses' and 'threats' side of the ledger

        • Dukeofurl 9.1.1.3

          SWOT

          Strengths, Weaknesses Opportunities, Threats

          Its too funny , a jack of all trades business consultant who writes high class bullshit, to cover the arses of equally high priced executives who dont have a clue about the business they are in.

          Reminds me of the just resigned Chief Statistician ( or Chief Executive as they like to call themselves) who had zero Statistics experience and couldnt tell when her equally unaware mangers were snowballing her.

  10. Pat 10

    The government (via the RBNZ) have indeed provided the support needed to maintain the dairy industry (its bigger than Fonterra) in an attempt to provide some time to deflate the bubble and avoid a repeat of the impacts of the 1980s reforms…..any other action would be marginal in effect.

    If events provide sufficient time it may also have a positive environmental impact and assist with land use change….over time.

    Given the other pressures being heaped upon the rural economy its possible they wont be provided the time.

    • greywarshark 10.1

      The dairy farmers and others have often created their own pressures by buying up more farms than they could run themselves, on a leveraged basis. Then they got taken in by Oz banks to do some hedging concerning their insurance, or the like.

      If they stuck with what they knew and stopped taking any notice of wheedling financiers feeding them a line that massaged their egos, they would have done better. But the rural fraternity seem to build up an awesome background for themselves blocking other views, with naysayers and townies as loons baying at the moon. Better to be really crafty and trust no-one.

      I've been looking at one of the rural cartoonists who punctures the myths and observes the odd traditions of the rural community. Malcolm Evans with Edna. Here's a bit about him – Good 'Evans. Look up google keywords: nz edna cartoon farmers – and after that look at the images and click twice for better size and legible captions. Great.

      And this Tamahere Community newsletter from 2014 is an example of how active some rural areas have been about the environment.
      https://www.tamahereforum.co.nz/2014/03/24/sun-sets-on-jock-cartoonist/

      And a bit of trivia, Palmerston North Boys High School has fostered three cartoonists at least – Tom Scott, Malcolm Evans and David Henshaw (Jock).

      • Pat 10.1.1

        whos responsible for overinflated land prices is neither here nor there if we are concerned about the link between the country's and the industry's future (personally id be looking more towards the banks same as with the residential bubble)…the fact is due to a number of factors, many outside our control there is real risk of industry collapse…now you may say bad luck farmers you knew the risks etc and someone else will come along and buy the remains and farming (or some activity) will continue….none of that will lessen the years of impact on our wider economy/society and I seem to recall how the decimation of industries/communities due to the neoliberal reforms in the 80s is loudly (and rightly) decried…..we would be wise to learn from history

        • greywarshark 10.1.1.1

          I was commenting on some of the pressures that farmers have, which they will continue to have because they need to take lessons in how to run their businesses which are not held by fed farmers or stock and station agents, hard-selling banks and others with a foot in the door.

          As you say many are saying too bad your loss, someone will come along and carry on. But this isn't what NZ needs and we are losing good experience presumably.

          So I note that you are calling for care. But what do you suggest to be done. Farmers take a course as suggested above, and then be offered a suspensory? loan or something that will carry them over. Allow a sharemilker who has savings to have a third or half-share in the farm as part of a partnership which can only be sold out with first offer to the other, and time to arrange the cash. Would that help. There are despairing sharemilkers who would love to be able to work into owning a farm but see the prices sky rocketing.

          • Pat 10.1.1.1.1

            what do i suggest is to be done?……what the RBNZ is attempting to do….push the dollar down as best they can and cross our fingers…we need time to ease the rural debt off the books and to adjust to a reduced dairy output and earnings, hopefully without too much disruption and heartache.

            Even if successful there will be casualties

            • OnceWasTim 10.1.1.1.1.1

              Yep @ Pat. It seems to me that the turkeys voted for a neo-liberal Christmas, and now that the banks and all Saints are putting them on death row, they want everyone else to start tithing in the hope they'll be provided with a resurrection day.

              Not only do I seem to recall advice against demutualisation, but I also seem to remember people like Rod Oram and others talking about 'added-value' products.

  11. michelle 11

    why do we have to bail this lot out again we paid out how many millions to fix m bovis

    these people are the biggest bludgers not beneficiaries it needs to stop

  12. Just curious and interested in a few self-appointed experts opinions.

    I'm interested in when it was that Fonterra started to go tits up. I'd suggest it was probably after 2012 demutualisation when it was turned into a Clayton's cooperative (the Cooperative you're having when you're not having a cooperative). When growth at all costs and the usual shite that occurs when masters of the Universe are put in control trumps what was intended in the idea of having a cooperative. I seem to remember a couple of RNZ interviews at the time with one or two owners/farmers expressing concern at what would happen – it's all come to pass

    Sorry @ Ad and co (Ltd, TM et al), shudda cudda wudda – Speirings et al. I can think of many more things a gummint in its first term should be thinking of and prioritising.

    By all means Mister Government – go ahead and do your best to prevent foreclosures and overseas hawks circling over the pickings, but if you're considering some sort of corporate-style bailout, better to let it all go truly tits up and find ways for those actually doing the producing to have a lay down, a long hard think, a re-establish themselves as a mutualised co-operative for themselves rather than for the benefit of a load of ticket-clippers in the supply chain.

    • greywarshark 12.1

      Wrong OwT – not better 'to let it all go truly tits up' except as a last resort. You know that farmers aren't good at peacefully protesting when their interests are threatened. We could never cope with a Hong Kong style protest. Our farmers have bulls-blood in them or perhaps the alcohol from Hungary or Spain. https://www.tripsavvy.com/bulls-blood-of-hungary-1501569

      If the ordinary thinking farmers could form a group and impress their will on the players at the head of Fonterra we could keep a live co-op ticking over healthily, but at the right level – it is a commodity player, small in a big world. Like our wool supply post WW2 (during the Korean war used in USA uniforms?)which gave us the taste of the big-time, leaving us in a cargo-cult mentality, I think now's the time for our milk dynasty to come to an end.

      But we still are producing a product that has managed to hold onto its name and can still make it overseas. Start giving enterprises that make stuff out of milk and export it, annual trophies and small grants for development.

      That's what we could do to ease ourselves out of the hole we are in. And stop thinking such big, smart, overweening hubris. Think of the story of Winnie the Pooh who gorged on honey and couldn't get out of Rabbit's door. He had to stay stuck till he slimmed down, and in the meantime he was of some use to Rabbit, who hung his towels to dry on his outstretched legs.

      A bit of coming down from the high horse of the dairy farmers and other over-excited ruiners of our basically stable economy and society for their short-term gain, would be of benefit to us all.

      • OnceWasTim 12.1.1

        Yep…………well, cargo cults are alive and thriving in this "'lil 'ole Nu Zull' that punches above its weight" eh?

        But in any event, I really don't care if Fonterra goes tits up, or if it has the sense to mutate before the rush. Whatever it does, I doubt whether your average 'farmer' will get to have much of a say in it – but then I guess, more fool Him and Mrs Him

    • KJT 12.2

      I predicted at the time that the de- mutualisation, and surrender to Neo liberal short term managerialism, would end with the demise of Fonterra. Even though I was hoping I was wrong.

      Note: If you carried out a full cost benefit analysis of farm exports, against the cost of borrowing, sacrificed jobs in other industries, pollution, land degradation, the cost of the many subsidies, plus imported feed and other associated imports, I doubt there is a, net positive, for New Zealand?

      For farmers to have a future, the model has to change.

  13. soddenleaf 13

    It's solid energy all over again. Key midis touch, turning existing winners into world corps backfires. If only they kept to core business and outsourced with proper safeguards like everyone else by buying into upstarts etc. But no, the man who pulled up the ladder behind him, also sweet talks the top end of town into being supermen, who can create the brave new world. Ayn rand like. Broker blinders. Fleckers. Thats what happens when we elect a genius moneyman to run businesses he never had a clue about. That's what happen to fonterra, a outsider who clear loves the way money talks firstly. Goes to a much deeper malaise, that nz doesn't grow its core business, it's people first. People first party.

    • greywarshark 13.1

      Key's good at diving – like Grandpa Duck into his bags of gold. Just a bus conductor clipping tickets of gold-coloured paper, sort of casino chips. As long as the casino isn't bust that is. Then what are they worth?

  14. michelle 14

    badly run and are we suppose to bail them out when all the farmers do is moan about everybody else but themselves ho wcan you jistify teh 4.5 million pyaout and the highe millison of daolalrs pd to the CEO

  15. michelle 15

    A badly run business and are we the tax payers suppose to bail them out when all the farmers do is moan about everybody else but themselves how can you justify the 4.5 million payout and the millions of dollars paid out to theo when the company was losing money something is seriously wrong here

    • New view 15.1

      We can’t justify the big pay days for poor company decisions Michelle. But it’s not us against them, it’s us and them. It would affect us all if they went down. Increased unemployment ,less money circulating in the country, less tax take, less money for any government to fix stuff and develop new stuff. Overall NZs prosperity would be affected. This country lives off its exports not its internal economy. It would be healthier for all of us if they stay healthy. Try not let your dislike of the dairy farming business affect your thought process.

      • Robert Guyton 15.1.1

        "Try not let your dislike of the dairy farming business affect your thought process. "

        Why?

        It's wise to incorporate awareness of the short-comings of dairying into one's thinking; isn't it?

        • New view 15.1.1.1

          Of course Robert. Fonterra need to be criticised big time. The country should try not to be so reliant on that industry in the future. At the moment they’re important to us. Michelle’s comment suggest there’s no connection between town and country with this subject. Of course she’s wrong.

          • Robert Guyton 15.1.1.1.1

            "Michelle’s comment suggest there’s no connection between town and country with this subject."

            Please expand and justify your claim. Cheers!

            • New view 15.1.1.1.1.1

              Michelle asks why should we bail them out. I’m not suggesting we bail them out however that statement suggests their demise wouldn’t affect her. I’m suggesting it would. Not the same but if we had let the BNZ go bust thousands would have lost money and the economy damaged. Fonterra going bust may not be as bad but the idea is the same. That may not be the best analogy but it’s close enough. In my opinion.

              • Robert Guyton

                You're not suggesting we bail them out?

                You're suggesting we don't bail them out?

                What's your view, New?

                • New view

                  Whatever Robert. You read Michelle ‘s comment and put whatever slant you want on it. I gave my opinion. Which you’ve responded to and she hasn’t. If Fonterra goes bust it would affect us all quite badly in my opinion. Period. Whether I would support a bail out, I don’t know, it’s semantic nonsense. It’s not relevant. Know one would care what I thought. I couldn’t arrange it. Let it go.

                  • Robert Guyton

                    "If Fonterra goes bust it would affect us all quite badly in my opinion"

                    Well, they've been "playing" at our expense, haven't they. If they fail, we suffer; did anyone ask us if we were willing to take that chance, New view?

                • Ngungukai

                  The Chinese Government will bail them out.

              • Dukeofurl

                Taxpayers owned BNZ. A big difference and banks are in a special class.

                Fonterras farmers just get what the market decides their product can sell for .

                Has happened before that quite a lot of farmers just increased their bank loans as they were running at a loss.

                https://www.nbr.co.nz/article/dairy-product-prices-fall-lowest-level-2015-bd-171461

                It does happen sometimes for farming , as they are asset rich but cash poor.

                Predictions are hard for any business and people who have training and experience dont get it right always.

                Others who dont have any knowlege should just stay away from doing so.

            • greywarshark 15.1.1.1.1.2

              15111

              "The country should try not to be so reliant on that industry in the future." Did we have a choice? I don't remember. It is either naive to make that statement, or I am naive and didn't take the chance to say 'Ye shall not pass!' I did go on a couple of protests against the Trans Pacific Partnership. Does that count about trying not to be reliant on dairy? I don't notice that anyone took notice though.

  16. As shown on no right turn, Dairy farming is dying a natural death because there is more money in trees

    http://norightturn.blogspot.com/2019/08/climate-change-double-benefit-of.html

    • Robert Guyton 16.1

      But money doesn't grow…hang on!

    • Dukeofurl 16.2

      he didnt mention dairying because its not dairying that is being replaced by trees.

      Beef and sheep farms on marginal hill country land prone to erosion have nothing to do with dairying

  17. Ad 17

    Good to see Minister O'Connor on TV1 News tonight telling Fonterra executives to take a pay cut.

    Need to see more of this from other government Ministers. They won't improve unless it hurts a bit.

    • Robert Guyton 17.1

      Damien's going all… honest!

    • Pat 17.2

      although they could do with a pay cut (as could have Spierings) it is rats and mice in the grand scheme …even the odd billion lost in China isnt at the root of their problems

  18. millsy 18

    It doesn't really matter anymore. Fonterra will no longer exist in 10 years. I think we will see a number of mini-Fonterra's with diverse ownership structures filling different gaps in the markets, while farmers will ditch the coop model for a more hassle free supplier-processor contract relationship. The next generation are becoming less and less loyal to the Fonterra model.

    • Michael 18.1

      Then the dairy industry will go the way of the meat industry. Too much processing capacity and too little marketing capacity to make an impact in the big export markets. That must have an effect on returns to farmers? The difference, AFAICS, between dairying and meat/wool farming is that the former is much more capital intensive (milking stations etc), with the result that many dairy farms are heavily indebted (to Aussie banks); if dairying becomes uneconomic, it could happen quickly, in which case Australian pressure on our government to bail out debtors (ie the creditors) will become oppressive.

  19. Ken 19

    This is the farmers' co-op.

    Why aren't they controlling it to their advantage?

    Maybe they need to have a look into how unions operate.

  20. Groundedkiwi 20

    Baa baa baa and Moo hoo hooo.

    Every farmer in this country knows

    they are not giving us Kiwis real milk.

    Fonterra can go cry on their bankers shoulders.

  21. About time the Tory farmers got a kick in the pants ?

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