Fonterra Cooperative Group would quickly succumb to foreign ownership if the world’s biggest dairy exporter went public, according to Federated Farmers’ new dairy spokesman Willy Leferink.
The lobby group made the comments following suggestions the proposed Trading Among Farmers scheme, which would see outside investors allowed to invest in a Fonterra-related fund, is a threat to farmer control of the cooperative. The scheme to allow farmers to trade Fonterra shares among themselves missed the cut for inclusion in legislation this side of the election.
“If Fonterra was publicly listed, within a decade it would go down the same path trod by Nufarm and Lion Nathan,” Leferink said in an op-ed piece for Ideolog magazine.
“Most recently, Independent Liquor and Charlie’s have joined 42 Below in foreign ownership. Perhaps Exhibit A is GlaxoSmithKlien; the Glaxo starting in Bunnythorpe.”
Leferink’s comments echo those of Fonterra Shareholders’ Council chairman Simon Couper, who said last week the council won’t support the scheme if farmer control and ownership is eroded. Couper said his statement was aimed “at shareholders and board alike.”
The drive for reform of Fonterra’s capital structure has been led by board members including chairman Henry van der Heyden.
Details of TAF, including the size of the outside fund that would provide the capital pool for trading between farmers, have yet to be finalised.
Leferink said it is a fallacy that local retail investors would remain the ultimate owners of the business if they got the opportunity to invest in Fonterra.
“There’s a fiction that ‘mum and dad' investors would become share collectors rather than share sellers,” he said.
“It's to the credit of Fonterra’s owners that they’ve seen through thirty pieces of silver in return for ‘stagging’ their shareholding,” Leferink said.
“Farmers need only look across the Tasman to see what a non-cooperative future would be like. In Australia, Japanese and Italian companies dominate fresh milk processing and the farmers there aren't happy about being pawns in the current supermarket milk-war”.
BusinessDesk
19 Comments
Feds are right , without compulsory superannuation like Australia , Kiwi's will never keep control here in NZ .
There is another solution to raising fresh capital , and that is to spin off by way of a partial listing one or two of their Brands into NZX listed Companies , with Farmers retaining the core ( being the Co-op) .
The problem seems to be that Fonterra are slipping into a position of being unable to think strategically , and are becoming complacent . Their handling of the Milk price rort shows arrogance as well as complacency .
Fonterra are slipping into a position of being unable to think strategically , and are becoming complacent
You're not alone in thinking that: http://www.stuff.co.nz/dominion-post/comment/5612568/Claims-of-chain-dragging-by-Fonterra@Ralph
"monopoly" of "the distributor"...
Hmmm.. I think the statement was in the article was "the current supermarket milk-war"
Could you please align the two statements, that is "monopoly" with "price war". Please explain how a price war is consistent with a monopoly.
lol, Cheers
Well you suggested it, but yes, it is really a duopoly or other word but the fact remains the profit and control of the sector does not lie in the hands of the farmers, who are being driven to the wall.
Therefore your suggestion that an 'effective monopoly' works out better for the farmer is not true, which was my point.
I was, of course, referring to the monopoly of the supplier, not the intermediary.
Doesn't it seem odd that a duopoly of the intermediary results in a price war in reduction in Oz, but in a high price in NZ?
The difference is the monopoly by the supplier in NZ, but not in Australia.
& where does that leave the poor old consumer?
Cheers
Philly, you seem to be conveniently ignoring the fact that the only reason that milk is so cheap in Oz, is because the supermarkets have admitted using it as a loss leader to attract customers. It is not therefore correct to compare a loss leader price with a geniune market price. Coles have also admitted to the govt inquiry that their prices are not sustainable long term.
The question you need to ask your local supermarket is why they won't follow Coles' lead and use milk as a loss leader.
Goodman Fielder recently commented that due to their 'main competitor in milk sales freezing prices earlier this year', they are finding it very difficult. So that blows your assumption that a monoploy supplier is the cause of high milk prices. Fonterra freezes the price of milk and Goodman Fielder suffers a hit on it's bottom line.
Do you beleive that the govt should subsidise the price of milk? That is, pay the farmers the difference between export value of the milk and a 'fair' price for consumers. The price of milk varies between $3.50 and $5.50 for 2 litres. Then of course there is powdered milk which is cheaper again. NZers do not have to have 'fresh' milk. Reconstituted milk from powder is fine - after all isn't that what infant formula is?
As one farmer to another mist42nz, I agree entirely with your comments re subsidies. Subsidies are the one thing that all the whingers of milk price conveniently overlook when comparing price of milk in NZ to other countries.
I haven't heard any favourable reports of DCn either down here (Southland). Have a young friend in Switzerland working in ag. They said that all farms have to set aside 7% of land total, to be fertilizer (incl effluent) free every year. THe council sits down with them and the area for that year is mapped out. The farm they are working on,19ha, is providing a living for 2 generations and next door is a 25cow dairy farm - again providing a living. BUT there is no debt. I still struggle to see how they can make a living from 25 cows. Has to be some serious subsidies going in.
We are in the Waituna Catchment in Southland. Environment Southland is seeking approx $2m in funding - 1/3 from Southland Council, 1/3 from Govt, 1/3 from Dairy NZ (take note Beef and Lamb haven't been asked despite beef and lamb farmers in the catchment.) As a dairy farmer I am contributing 3 times - once as a rate payer (there is a dairy differential here), once as a taxpayer to govt and once again as a dairy levy payer. And the ecowarriors have the cheek to say I am not contributing to the solution. ;-)
Regards overlooking subsidies (including to dairy farming) may I suggest refamiliarising
a) Kubler-Ross and her 5 stages of grief
The five stages of grief Kubler-Ross wrote about are:
- Denial
- Anger
- Bargaining
- Depression
- Acceptance
http://www.change-management-coach.com/kubler-ross.html
and then
b) the Commerce Commission decision regards the dairy industry's application to form what was to become Fonterra:
http://www.comcom.govt.nz/media-releases/detail/1999/commissionsprelimin
Summary of Preliminary Estimates of Detriments and Benefits ($M per year)
Category ::: Status Quo counterfactual ::: Deregulationcounterfactual
Benefit ::: 26-56 ::: 47-92
Detriment ::: 138-461 ::: 163-527
Note the detriments were primarily the extent to which the Commerce Commission had determined NZ consumers were to annually subsidise the mega co-op's (Newco) shareholders.
If a buisness case is sound a good company will have very little trouble raising capital.
There is a lot to be said for restraining the growth of a comany to a healthy organic growth rate. This enables management to safely grow its ability to manage the enterprise as it grows. How often do you see a company raise a huge amount of cash, then suffer management speed wobbles.
I am sure that there are forces at work close to or inside Fonterra who have a master plan to float it and get it into overseas hands (why does the question keep comming up if somebody doesn't keep asking it?) If they are unsuccessful at achieving this directly, then they may have another plan to push an overly ambitious and debt hungry growth proposal that Fonterra have trouble executing or the price of milk drops or something. Just when things are looking bad Nestle or a large Chineese investor will come along and save them.
First priorities CM....always structure the golden parachute escape routes for the 'swine' before anything else, but after collecting the investment loot and touting the company plan as the best thing since the last best thing the punter missed out on.
Then post the collapse, the same swine can start all over again.
I am not sure why you can't work it out. If you remove competition by merging processors until one dominates collection of the industry's milk supply, consumers end up paying more. At least that appears to have been the Commerce Commission's conclusion regards domestic consumers.
Some general principles relating to competition:
http://en.wikipedia.org/wiki/Monopoly_profit
The initial lack of viable competition though leads to disaster all round In the longer term - that possibly already being reflected in Fonterra's need for 'capital restructuring'.
If you want to move on to how taxpayers are subsidising the dairy industry (free externalities, special research funding, preferential trade treatment, etc.) I am up for it, but I would prefer it if our dairy farmers moved towards accepting the public's right to an interest in their special/privileged position, and stopped whinning.
What consumers pay more Colin, domestic or foriegn. The principles used to support your arguement may be sound in simple theory, but I suspect wouldn't stack up in relation to Fonterra, the NZ milk industry and the NZ consumer, in relation to what you are applying. NZ milk is sold globally, the domestic markety accounts for less than 5%. If you want to tip Fonterra up, the corporates that will take it's place will fleece the farmers, NZ consumers and future well being of the country.
I'm not sure what angle you are coming from, but I believe retaining Fonterra as a supplier co-operative, without unreasonable burden placed on it by self interest groups (corporates) and government, it will be best for suplliers, NZ consumers, and future generations.
However it appears that we are being pushed towards a corporate model, which will doom Fonterra as a co-operative. Do you think NZ will be better as a result?
What consumers pay more Colin, domestic or foreign? The principles used to support your arguement may be sound in simple theory, but I suspect wouldn't stack up in relation to Fonterra, the NZ milk industry and the NZ consumer, in relation to what you are applying. NZ milk is sold globally, the domestic markety accounts for less than 5%. If you want to tip Fonterra up, the corporates that will take it's place will fleece the farmers, NZ consumers and future well being of the country.
I'm not sure what angle you are coming from, but I believe retaining Fonterra as a supplier co-operative, without unreasonable burden placed on it by self interest groups (corporates) and government, will be best for suppliers, NZ consumers, and future generations.
However it appears that we are being pushed towards a corporate model, which will doom Fonterra as a co-operative. Do you think NZ will be better as a result?
Because we pay international prices for Fonterra products...plus farmers retire they sell tax free as tehre is no cgt, plus they pollute rivers and lakes and dont pay for the clean up si it looks like we do we are subsidise them in several ways....if so and they have to be subsidised to survive then the economic model is broken, in which case more farming makes it worse..
regards
So Steven farming is the only industry in NZ that is subsidised, or just the only industry you like to complain about. Logging, wood and pulp manufacturing sites also pollute and don't pay for that pollution. Heck there is an urban community (three in fact) that are in serious breach of their sewerage discharge consents - and always have been - and they don't even get a mention by the local regional council. As Jan Wright, environment commissioner said 'we all pollute' - take your head out of the sand. If you are so sure farmers have such an easy ride - come join us. ;-)
Colin, all economic activity creates externalities - not just farming. :-)
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