It's life Jim, but not as we know it.
Useful articles about animal health and products used by SGT Dan:by Natalie Crystal
Keith Woodford Posts
Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
Directors Craig McMillan and Greg Terill have collectively over 40 years’ experience in the lining industry, and have been involved in installations throughout New Zealand, Australia and the Pacific region.
New Zealand Grazing is focused on reliably growing dairy heifers to the highest standard, our experience has been gained working alongside thousands of farmers around the country. We were selected by Fonterra and Silver Fern Farms to grow their young livestock.
Farmer feedback set to shape revised capital structure proposal
With the first phase of Fonterra’s capital structure consultation now complete, the Co-op is drawing up a revised proposal that aims to reflect farmers’ views.
A number of changes are being considered to the preferred option initially put forward in the Consultation Booklet in May – including adjusting the proposed minimum shareholding requirement for farmers and enabling sharemilkers and contract milkers to own shares.
“It’s a good time for the Board to step back and reflect on the feedback as most farmers will now be busy with calving. Once they’ve come through this particularly busy time of the season, we’ll be ready to consult on the updated proposal,” says Chairman Peter McBride.
Consultation has been extensive to date, starting with the initial communication on 6 May and the Consultation Booklet being sent to every farmer owner. Since then:
Directors have held 90 farmer meetings, attended events such as the My Connect conference and Field Days as well as leading 7 online webinars and speaking with many farmers directly.
Over 5,000 farmers have directly engaged through feedback channels, in addition to discussing the options with each other.
Members of Fonterra’s Board and management have also been talking with other groups such as the Co-operative Council (formerly the Shareholders’ Council), the Fonterra Shareholders’ Fund, the Government, major banks and rural professionals. This engagement will continue as the consultation progresses.
“We would like to thank our farmer owners for getting involved and approaching the consultation with open minds,” says McBride.
“We also want to acknowledge the uncertainty that comes along with us considering changes to our capital structure and the significant challenges that it’s creating for some farmers. The best way to give certainty is to ensure we have a full discussion as a Co-op and get to a quality outcome.
“The Board maintains its belief that, in a flat or potentially declining milk environment, making changes early will put us in the best position to provide farmers with more flexibility while protecting farmer ownership and strengthening our Co-op’s financial sustainability.”
Summary of farmer feedback
Many farmers said that additional information on the Co-op’s business strategy and future performance would help them form a clearer view on capital structure.
“In August and September, we will provide further information on our long-term strategy including the types of activities we will invest in, the returns we are targeting, and the measures against which we will track our progress.”
McBride says farmers’ views have been varied and heartfelt, but with some clear themes coming through.
“We will seek to cater for the diversity within our ownership base, but it is impossible to incorporate every piece of feedback. As a Co-op, we need to be pragmatic and open to compromise in order to find a way forward together that is in our best long-term interests.”
Proposed areas for change
The Board is considering a number of changes as it thinks about what a final proposal could look like. These include:
Setting the minimum shareholding requirement at 33% of milk supply (or 1 share per 3 kgMS), rather than 25% (or 1 share per 4 kgMS) as originally set out in the preferred option.
Enabling sharemilkers and contract milkers to hold shares if the Co-op moved permanently to a farmer-only market.
Extending the entry timeframe from five to six years.
Extending exit timeframes for all farmer owners on the date of the vote to up to 10 or 15 years, including those who have already ceased in the past few seasons but who still hold shares.
Reviewing the market maker role and looking further at how potential share buy-back options might support liquidity in a farmer-only market.
Maintaining the share maximum at 4x milk supply to also help support liquidity.
“We have also reconsidered voting rights in light of some feedback and at this stage our preference is for voting to continue to follow share-backed supply as it currently does,” adds McBride.
Next steps for consultation
Fonterra is committed to moving as quickly as it can through the capital structure review while also taking the time needed to consider all views.
Over the next couple of months, the Co-op plans to do surveys and hold focus groups to ask farmers specific questions and test different aspects of the potential changes.
“This will help us as we continue to develop a more detailed proposal to present to farmers around the time of our annual results in late September for further consultation. At this stage, we are still aiming for a farmer vote at our Annual Meeting, which will be held in December.”
Horticulture sector facing a worker shortage crisis
Our horticulture sector is in crisis, it’s crying out for leadership and support, but the Government is failing to provide the resources needed so the industry can deliver for our rural communities and wider economy, National’s Horticulture spokesperson David Bennett says.
“Horticulture Minister Damien O’Connor has known about worker shortages in the industry for almost a year, but still hasn’t come up with a plan to address the issue.
“In fact, Minister O’Connor went so far to say projected shortages happen every season and have never been fully realised, seeming to forget that New Zealand’s borders have been shut and workers haven’t been able to get into the country like they normally would.
“The Ministry of Primary Industries has identified a worker shortage in the horticulture sector of up to 13,500 people. The Minister hasn’t listened to the concerns of growers who have been crying out for help for months.
“New Zealand’s horticulture sector is a $6.5 billion industry that drives employment across many regions of New Zealand. The industry has worked hard to build an international reputation for consistently high quality produce, but that reputation is at risk if they can’t deliver the product to consumers.
“The Minister should be supporting an industry that has strong environmental credentials and high returns for the New Zealand economy.
“Growers on the ground are desperate for leadership from the Government. It’s critically important the sector is told what the Government is planning to do, so they themselves can plan for the future.
“There has been no consistency from the Government in determining who can and can’t come to New Zealand and work, with people from the Cook Islands soon able to travel quarantine free to New Zealand, but other Covid-free Pacific Island countries have not been offered the same opportunity.
“Growers will be forced to make hard decisions around their productive capacity and will match this with their predicted labour supply and that will be to the detriment of downstream jobs for New Zealanders.
“Ultimately, consumers will be forced to pay when fruit and vegetable shortages inevitability lead to higher prices.”
26 May 2021
Fonterra sets opening 2021/22 forecast Farmgate Milk Price and updates on business performance
Fonterra today announced an opening forecast Farmgate Milk Price range for the 2021/22 season of $7.25 - $8.75 per kgMS, with a midpoint of $8 per kgMS.
It also narrowed its 2020/21 forecast Farmgate Milk Price range, which reduces the midpoint by 5 cents to $7.55 per kgMS, and reported a strong performance for the nine months ending 30 April 2021. However, it cautions there will be significant pressure on earnings in the last quarter of the year due to the normal seasonal profile of the business combined with tightening margins.
CEO Miles Hurrell says that the improving global economic environment and strong demand for dairy, relative to supply, are sitting behind the Co-op’s $8 midpoint of its 2021/22 forecast Farmgate Milk Price range.
“At this point it would see the Co-op contributing more than $12 billion to the New Zealand economy next season.
“Global demand for dairy, especially New Zealand dairy, is continuing to grow. China is leading the charge as its economy continues to recover strongly. Prompted by COVID-19, people are seeking the health benefits of milk and customers are wanting to secure their supply of New Zealand dairy products and ingredients.
“Growth in global milk supply seems muted and the global supply of whole milk powder is looking constrained.
“Based on these supply and demand dynamics, along with where the NZ dollar is sitting relative to the US dollar, we’re expecting whole milk prices to remain at current levels for the near future.
“As we look out over the next 18 months, there are a number of risks, which is why at this early stage we have this large range on our forecast Farmgate Milk Price. Some of the major risks include: COVID-19, which is far from over; the impacts of governments winding back their economic stimulus packages; foreign exchange volatility; changes in the supply and demand patterns that can enter dairy markets when prices are high; and as always, potential impacts of any geopolitical issues around the world.”
Having sold most of its milk for the 2020/21 season, Fonterra is now in a position to narrow this season’s forecast Farmgate Milk Price range from $7.30 - $7.90 per kgMS to $7.45 - $7.65 per kgMS.
Hurrell says, at a mid-point of $7.55, 2020/21 would be the second year in a row with the forecast Farmgate Milk Price above $7 per kgMS.
“Since March, we have seen prices settle, somewhat, which is why we have revised our midpoint down 5 cents. In that extraordinary March GDT event, where prices jumped 15% and which contributed to the increase in our forecast 2020/21 Farmgate Milk Price range, the average price for whole milk powder was over US$4,350 per metric tonne. In the last three GDT events, however, the average price has reduced to close to $4,100 per metric tonne. And GDT butter prices have gone from almost $6,000 per metric tonne to below $5,000 per metric tonne for the first time since January.”
For the nine months ending 30 April 2021, Fonterra delivered a normalised Net Profit After Tax of $587 million, up 61% year-on-year, reflecting the Co-op’s improving underlying business performance and stronger balance sheet. Reported Net Profit After Tax was $603 million, up 2%.
Fonterra’s Total Group normalised Earnings Before Interest and Tax (normalised EBIT) was up 18% to $959 million, due to higher margins and reduced operating expenditure.
Hurrell says COVID-19 challenges are still very much part of life for the Co-op’s employees and customers around the world.
“It’s too easy to forget this if you’re sitting here in New Zealand – but today’s results show that despite these challenges we’ve lifted our financial performance. Over the last three months, we have also committed to getting out of coal by 2037 and made some promising progress in a trial using seaweed in cows’ feed to reduce emissions.
“I would like to thank all our employees for delivering another strong set of results and also our farmer owners for their high-quality New Zealand milk and ongoing support. I couldn’t be prouder of how our employees and farmers are working together.
“Greater China continues to be an important performer for us, delivering year-to-date normalised EBIT of $457 million, up 30% or $106 million year-on-year. Foodservice, once again, was the big driver behind this result, contributing $93 million of the growth. In the third quarter, the team continued to improve the strong gross margins we saw in Foodservice at half year by shifting milk into higher value products, for example cream cheese. As a result, the year-to-date margin increased from 21.5% to 28.6%.
“Asia Pacific’s normalised EBIT of $224 million was down 10% or $24 million. While Consumer improved by 29% and Foodservice by 89%, this was offset by Ingredients which was impacted by pricing lags on sales contracts with customers, delaying our ability to pass through the increase in our input costs.
“AMENA’s normalised EBIT of $322 million was down by 11% or $40 million, mainly due to lower Ingredients sales volumes as we continue to make the most of one of our strengths and that is our ability to move milk into higher value products and markets. However, AMENA Consumer and Foodservice continue to perform well, maintaining a year-on-year improvement in gross margins.”
Hurrell says the Co-op’s ongoing financial discipline is also a big part of its third quarter performance story.
“Fonterra’s operating expenses are down 5% year-to-date but we are planning some additional expenditure in the final quarter to support our brands and product initiatives for next year. Our debt reduction over the last couple of years and lower interest rates have reduced our interest bill by $69 million for the nine months ending 30 April 2021.”
Fonterra is maintaining its normalised earnings guidance of 25-35 cents per share. While year-to-date normalised earnings per share are 34 cents, the Co-op is expecting earnings in the fourth quarter to come under further pressure and is providing guidance that its full year earnings are expected to be more towards the mid-point of the range.
Hurrell says there are some clouds on the horizon when it comes to Fonterra’s earnings performance.
“While overall we’ve seen stronger gross margins so far this year, they’ve narrowed in the third quarter as the increasing raw milk prices have flowed through to our input costs and the pricing lags on sales contracts with customers have delayed our ability to pass through the increase in our input costs.
“As a result, we’re forecasting increased pressure on margins in the fourth quarter. This is compounded by the normal seasonal profile of our business, where we have our ongoing fixed costs but lower volumes of milk being processed and sold. All of this means the fourth quarter will be challenging from an earnings perspective and we expect the margin pressure to continue into the first quarter of the 2022 financial year.”
Portfolio review update
Back at the start of the 2019 financial year, Fonterra set out its original three-point plan to turn around the business. Part of this involved a strategic review of our assets which led to, among other things, the Co-operative’s decision to sell down its investment in Beingmate Baby & Child Food Company Ltd (Beingmate) and its China farms.
During the third quarter, Fonterra completed the sale of its shareholding in Beingmate, marking a full exit of its investment in the company and completed the sale of Fonterra’s two wholly owned China farming hubs in Ying and Yutian.
In October 2020, Fonterra announced it had agreed to sell its 85% interest in its Hangu farm in China to Beijing Sanyuan Venture Capital Co., Ltd. (Sanyuan), for $42 million (RMB 190 million*). Sanyuan has a 15% minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest. Due to lack of progress in agreeing the specific terms of the sale, the right of first refusal was terminated earlier this month and Fonterra will now look to open up the sale process to a wider group of prospective buyers.
Hurrell says the progress that has been made on the portfolio review is allowing Fonterra to really focus on its strategy of growing the value of New Zealand milk by using innovation, sustainability and efficiency to deliver products that customers value.
“It starts with having the best milk in the world – our New Zealand milk – and by having a more focused asset portfolio, it allows us to prioritise more of our resources around it and we can see this coming through in our performance.”
* based on an RMB to NZD conversion rate of 4.5
Fonterra to pay farmers more for sustainable, high value milk
Fonterra farmers producing sustainable, high quality milk will be eligible for a new payment, as Fonterra announces important changes to the way it pays farmers for their milk.
From 1 June 2021, Fonterra is introducing a Co-operative Difference Payment of up to 10 cents per kilogram of milk solids (kgMS) if the farm meets the Co-op’s on-farm sustainability and value targets. It’s part of the Co-op’s strategy to add value to New Zealand milk and responds to increasing demand from customers here and around the world for sustainably-produced dairy. The payment will be funded out of the Farmgate Milk Price.
“The total Farmgate Milk Price will remain the same across the Co-operative, but the amount that each individual farm is paid will vary depending on their contribution under The Co-operative Difference, in addition to the other variables, like fat and protein, which affect the amount that’s paid,” says Fonterra CEO Miles Hurrell.
“We’ve always paid our farmers based on the value that milk provides to the Co-operative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.
“This payment helps us meet the changing needs of our customers, so they continue to choose our milk and enjoy dairy as a sustainable and nutritious choice.
“We want to deliver the innovation, sustainability and efficiency needed to make the most difference to our strategy and our bottom line. It makes sense to financially reward those farmers who go the extra mile to help our Co-op differentiate its milk.”
Last year Fonterra launched The Co-operative Difference – a straight-forward framework to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.
The payment will replace the Farm Source Reward Dollars farmers currently earn through The Co-operative Difference and will work on a tiered system. The more a farmer achieves in The Co-operative Difference programme, the higher the payment will be. The precise payment structure will be confirmed over the next few months following discussions with farmers but will be no more than 10 cents per kgMS.
Nestlé’s Robert Erhard says, “At Nestlé how milk is produced matters. Now more than ever, people expect farmers to act as good stewards of the land – safeguarding the climate, enhancing animal welfare and carefully managing water and the health of soils.”
“Farmers put in a lot of effort to produce the best quality milk possible. Over recent years, large numbers of farmers have spent a significant amount of time and money to improve their local environment and waterways to make their farms sustainable for the future. It’s great to see these farmers distinguished and rewarded for their efforts to produce and deliver a product that Fonterra can capture the highest value from. Through The Co-operative Difference, we can get better, together,” says Northland dairy farmer Terence Brocx.
“We’ve created this with our Co-operative principles in mind. All farmers can participate in The Co-operative Difference and we’ll keep supporting them through Farm Source,” says Mr Hurrell.
“We want farmers looking to the future, and The Co-operative Difference encourages them to continue to focus on the things that will create the highest value milk. This helps us create higher value products that stand out in the global market for their New Zealand-ness and the sustainable way they’re produced.”
Introducing The Co-operative Difference payment for farms that meet Fonterra’s The Co-operative Difference targets, including on-farm sustainability and milk quality targets.
Effective from next season, from 1 June 2021.
Current Farm Source Rewards Dollars in The Co-operative Difference will be replaced with a c/kgMS payment.
The amount and targets will be set annually by the Fonterra Board.
The payment will work on a tiered achievement system. The more a farmer completes in The Co-operative Difference, the higher the payment they’ll receive.
The payment won’t be more than 10 cents per kgMS for the first season commencing 1 June 2021. Fonterra will work with farmers on the framework over the next few months to achieve the right balance.
The total amount available to be paid to farmers does not change, but a proportion of the Farmgate Milk Price will be available to be redistributed between farmers to better reflect the value of the milk from individual farms.
Based on achievement under The Co-operative Difference framework.
It will be a simple and low cost approach but with robust and straight-forward verification.