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Given strong moves to restructure New Zealand’s red meat sector, Federated Farmers is describing the director elections for Silver Fern Farms and Alliance Group as historic.
“If you want empowerment in your farming business then as shareholders you need to vote,” says Jeanette Maxwell, Federated Farmers Meat & Fibre Chairperson, newly returned from a World Farmers’ Organisation event in Zambia.
“Set against a backdrop of what could be up to three million fewer lambs and declining stock numbers, future generations of farmers will ask current shareholders how they voted."
“Actions speak louder than words but sadly the same applies to inaction. We need shareholder farmers to get off their backside and vote."
“We also need the coops to lift their game in actively promoting the election to their shareholders."
“Farmers have equity tied up in the meat coops so it is enlightened self-interest to take more than a passing interest in the coops and who they wish to run it. It’s material to farm profitability and viability."
“Farmers must never forget that Silver Fern Farms and Alliance Group companies have combined revenues of some $3.5 billion."
“Put another way, that’s about 50 times the revenue of sharemarket darling, Xero."
“These coop elections are the farmer’s chance to be heard and to make things happen. Don’t pass on the opportunity,” Mrs Maxwell concluded.
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20 Comments
Wow, you got me googling the World Farmers Organization, I'd never heard of them.
Could you enlighten me on the aims and objectives of the organization.
Why are the Feds behind this meat restructuring, i only see more pain. Of course it should be obvious to me that some 40+ gentleman, who inherited a large farm, with staff, finding himself a little bored would want to change the world. It just never bloody works.
Hope the trip went well, did you bring anything home for me?
Why Is Predicting Crisis/Reset So Difficult?
http://www.oftwominds.com/blognov13/prediction11-13.html
I have to disagree on one small point he makes; The history is not a very good guide.
I hold history to be a rich and peerless guide because there is nothing new under the sun. In the words of Malcolm Muggeridge, "there are only old things happening to new people" and the most useful part of history is the history of thought - what were people thinking that made them act the way they did?
What made people get on small wooden tubs and immigrate literally half way acorss the globe to places unseen?
What went through a mans head as he stood in rigid line of red coated soldiers and expose himself to musket fire for long periods of time?
By what courage did a handful of men over throw world slavery that had existed since time beyond memory?
What rationalisations went through the mind as they slaughtered millions during Stalins purges?
What were the Germans thinking to start not one but two world wars (one assumes they didn't think they would lose)?
There are so many questions that history can cast light apon.
Leaving aside the energy comment because i havn't a clue what the world would look like. To get to capital values, to were young people such as me 26, can get into farming alone there would need to be blood in the streets. 4-5000 SU (sheep & beef) maybe viable, would cost
$200 per SU*4000=$800k
$250k for plant and a little working capital
$1.05mil
Lets say we had saved $400k and borrow the other $650k, on another budget that leaves $30k for rent or debt servicing on land and i havn't seen a place that fit those # ever..and those were very positive #...looks like dairy/or hobby farmer 4 everyone
That's generally why you have to snowball your equity to ante into these situations.
In dairy that's sharemilking to build herd, which is then sold for foot in door. Often with equity/ equity-debt (prem shares) partner. On the up side, by the time you get ready to bid for the larger deals you've got the finance building figured out and your business stable.
However big foreign money and queen st corporates do make it harder by consolidating the entry level properties into their factory farms. But that's what supermarkets and kmart/warehouses/farmers-store did to small retailers, and amazon has done to book stores.
I build equity in houses, thanks to a redundancy package. That 25k got a toehold in res property (which can be highly leveraged) built the equity there, then used that to anchor/ante the business loan for the first herd. Pretty much the exact same process that most small business startups use. Also had a family member that put their houses on the line too.
If it was easy or qa quick buck, then it would be worth even more to the capitalists and the prices would therefore go up further. That's the way it goes when the market is setting the price, it's grind all the way, and capital sale is the only gain, as you buy for the longterm value and accumulate the value throughout the length of the investment/business. At that point you've got a choice of "profit take" or "equity leverage".
Hence the threefold triangle: security(equity), investment/working, profittake/(cashflow).
When I started out on a lease farm in the mid 80's my rent was $39 an acre which included a house. I got $35 for lambs on the boat live. I got $2.70-3.00 a kg for bull beef, I could buy a bobby calf for $140 dollars and and 18 month bull for $300- 350. I purchased ram lambs out of the fielding yards at $8 each.
I could make a living but buying a farm which at the time were going for $250 a stk unit, was hard as the banks wouldn't lend. My returns were better than they are now. There must have been very high stock numbers around after the Stock incentive schemes and a lot of mortally wounded farmers from the Rural banks cheap loans going market, and farmers who had borrowed off shore and been exposed to currency risk.
Life was so much simpler, I want to go back. No gst. When they introduced GST it was meant to be accompanied by a drop in income taxes, Lange had a cuppa and we all ended up paying double the amount of tax we had before.
I don't think we can afford the present Government cost structure including local government. Correction time is going to interesting. Its not a case of stabilising growth in the public sector but winding it back. Look how they hide problems like youth unemployment, double the size of universities, let young people go to Aussie, what's the next brainwave going to be to solve low employment and poor wages?
Times I used to think were just part of a cycle, now with globalization the game we play has a lot more risk, like Russian roulette with four full chambers. The world is changing, nothing is as dependable as we used to think. I wouldn't borrow anything other than for livestock if I was buying a farm.
You know all that housing debt in NZ especially in AKL, where's the production behind all that debt? Or is it just a ponzi scheme requiring never ending capital gain and new foreign money?
Take dairy out of our trade figures and NZ is back to an 80's crisis in no time. Where we would be if Bernake hadn't poured liquidity all over the place and now japan has joined them.
http://www.bloomberg.com/news/2013-11-05/jgbs-declared-dead-by-mizuho-a…
http://www.rollingstone.com/politics/blogs/taibblog/chase-isnt-the-only…
Watch eastern Europe it could become a big player in agriculture. they have cheap energy so its a natural place for investment to flow, and suits corporates who can deal with the politics.
There are opportunities in Chile still, but I'm waiting to see how the dairy industry unfolds here.
The Wine industry is another industry burned with an impossible cost structure when you compare it to the competition.
Its like the truculent Kid in an old cartoon, sitting at the table saying to his parents; I was merely observing that"because is why". Forget where I read that.
I'm working on cheap localised energy supply. It's expensive now but isn't going to get cheaper.
I recently read an article that pointed out the Chinese got a huge manufacturing boom post-communism because they'd tanked their economy and thus were allowed to drop their currency and work conditions. Which Gloabally made them the best game in town for Contract Manufacturing (ie outsourcing). But Contract Manufacturing is extremely low margin (~3%) because that price advantage is your sale point.
They know they can't do it forever, and either their people will get better wages or foreigners will compete, so they had to find other ways to cut costs.
Can't cut rent, inflation, insurance, more than should already be best value. Cutting marketing/advertising if at best value is counter-productive. Wages are coming up which meant automation and bulk but once pushed to the minimum where is there to go. taxes are externally controlled, as is raw materials. Leaving energy and communications as the two things which can be reduced - more importantly the can be bought now while prices are high and labour is cheap, and then when labour is expensive the local production of energy is paid off, and thus I will remain competitive. Those who wait, will pay high wages AND high energy AND try to find capital to develop competing strategies.
so it will be very painful when we are so dependent on dairy,'the only game in town'. How much of the 'dependent on dairy,' is actually 'dependent on Fonterra'? TAF has simply swapped share redemption for what is looming as a much bigger problem - supply redemption.
and one description of a future:
The Industrialisation of American Dairying and the Implications for New Zealand- The American dairy industry is rapidly transforming to an industrial model based on large scale (>2000 cow) mega farms.
- As of 2013, approximately 40% of American production comes from 800 mega farms.
- Another 30% comes from a further 2500 farms, each with between 500 and 2,000 cows.
- The final 30% comes from more than 50,000 farms with less than 500 cows
- The mega farms have costs of production that are much lower than the smaller farms
http://keithwoodford.wordpress.com/2013/10/10/the-industrialisation-of-…
Thanks Henry,
Corporate Farms in the USA get %80 of farm subsidies
http://farm.ewg.org/region.php?fips=00000
There is a big 9000 herd down the road from here for sale, I hear a sale to Chinese interests has fallen through. Yep, they need Mexicans but there is no intention to do anything about the problem, they will be a part of the USA success story for a while yet.
The USA will turn to exports as domestic sales continue fall and competitive cost structures allow them to compete on the world stage. Same as Ireland can compete against us.
I saw a large scale dairy farm in Utah 3 years a go, all new, big center pivots, all cows housed, two large John Deere self propelled harvesters going 24 hours a day.
Remember the big push for farmers from the UK to move to Dakota for a big dairy development suppling a new Ice cream factory.
http://www.youtube.com/watch?v=Ig_dAYxL6rc
How does the 'economy of scale' arguement work?
I've heard that Californian dairy farms have very little mastitis, as the persons employed to milk cows are generally adverse to cupping animals that kick, which are therefore culled. An effective if not costly solution.
AJ, you posted a link the other day highlighting the struggle for Californian dairy farmers being held over a barrel by government regulation favouring what I presume to be non-farmer owned processors, and as result struggling to make a profit. Yet I have read (possibly in a Rabobank report) that California is a principle sector for US dairy exports, and is considered internationally competitive (anything to do with cost of labour?).
I thought that would be a reason to protect the cooperative business model which integrates the supply chain. I think it's unfortunate since the formation of Fonterra the dairy cooperative model in NZ has been undermined, both internally and externally.
We have a young Texan working on farm at present. Parents own 5000cow dairy farm in northern Texas running a 24hr milking shed operation. 12 hour shifts.
They used to use illegals but got caught so now employ mix of legal Mexicans and locals. Authorities have been cracking down on illegal labour for the last few years.
Difficulty in getting 'good' local labour (now where have I heard that before).
The Mexicans take NO holidays. Young Texan was blown away when they were told that they could have a time off as holidays. 'But I get 3 days every 2nd week off'. They can't comprehend that we give weekends off, 4 weeks holidays and time off in lieu if they work Stats. It doesn't happen like that in Texas.
The farm in Texas milks in two 'pit' sheds (similar to herringbones).
Is self sufficient in feed except for concentrates.
They purchased extra land to grow crop due to variablility of both supply and price.
To me one of the most interesting things is that they supply DFA because they helped them get in to their operation.
Take a look at these guys
http://greenfieldsmilk.com/#about-us
They are a mix of Indo/Australians
and they are farming up in china too.
http://www.afr.com/p/national/milking_the_china_boom_hlXS2CM1wY9m3g0JDn…
brings to mind:
http://www.stuff.co.nz/business/farming/dairy/9380778/Chinese-new-big-c…
The Chinese bid offers them the chance to cash up the "farms" shares at a 30 per cent higher price than they were trading at on the Unlisted market, which does not have as many rules and regulations as the NZX.
"I think most felt like us, we didn't get too much in the way of dividends along the way but we've all done very nicely in the end."
The independent appraisal of the takeover bid says Synlait Farms approached 100 parties in 23 countries, of whom 15 indicated an interest in buying a stake or the whole company, and after receiving indicative bids selected Shanghai Pengxin. Allowing shareholders to cash up after more than 10 years of few dividends is one of the main reasons for this deal.
"People close to the company realise it has been a wonderful success story but it has been built on a lot of debt," Wills says.
Boswell does not venture a hard and fast opinion on this. "What I can say is that, in my opinion, the aggregation will be an important matter taken into account when a decision is made by the ministers whether or not to grant consent."
Compare Austasia and their China farms and Synlait, Aust asia started in China in 2009 with 300 cows. They have institutional equity funding, they plan a $1bn IPO...
- Have Synlait done what they did in the wrong country.
http://www.unlisted.co.nz/uPublic/docs/snlf/Synlait%20Farms%20Ltd%20Ann…
Look at earnings and profits and debt and equity.
Figure out the mortage valuation, or productive valuation. (why the buyers paying over the odds?)
Figure the money and time needed to adjust systems.
Depending on whether you want to keep ownership in the farm....
get a sharemilker in. it's still dairy but you don't end up on the farm.
start a company. Lease property to company. Hire staff.
if you don't might the risk then go "50:50 sharemilk" in dry stock - ie your land, their stock, split profit. Similar to leasing but potential higher income and slightly higher risk.
I really wish I could get the inherit bit, I'm having to do the saving to get the land, that I currently have to lease. And the lease cost is high enough that I can't hire staff.
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