11 minute read
Good milk price and earnings Hurrell
4FARMERS WEEKLY – farmersweekly.co.nz – December 13, 2021
News Farmers back Fonterra restructure
Hugh Stringleman & Gerald Piddock
FONTERRA’S new flexible shareholding proposal has received 85% approval from farmers who voted before and at the special general meeting.
The board received a strong mandate for change when 85.16% of votes were in favour and 82.65% of eligible votes were cast.
With that clear mandate, Fonterra would work with the Government on how to give effect to the changes through the Dairy Industry Restructuring Act.
Chair Peter McBride believed that the co-operative and the Government were philosophically aligned and that a regulatory framework would be found.
During the short special meeting no farmers spoke for or against the proposal after the motion was put, except one in the room in Invercargill who congratulated the company on its widespread consultation.
In essence, Fonterra’s farmers had to decide whether they are a co-operative or corporate and the current model, with a foot in both camps, was not sustainable, McBride said.
“If we are only interested in the value of our shares, then we should fully corporatise right now,” he said before the special vote was finalised.
“But if we want to be a strong and enduring co-operative, we believe the capital structure changes we are recommending are the best course of action available.”
Fonterra has not always lived up to its promise, but the capital structure discussion was not about the past mistakes.
It was about enabling the future and taking a long-term view.
Where farmers decide to commit their capital, buy and sell shares between them, set benchmarks for milk quality, ethical and environmental practices and attract the smartest minds to work on farmers’ behalf.
Agriculture Minister Damien O’Connor said it was a great result for Fonterra and the high percentage who voted yes was an endorsement of the board’s effort to regain the confidence of farmers after a period where it was a “muddled co-operative”.
O’Connor said he had been in discussions with McBride prior to the vote and said they were aligned in wanting the best for Fonterra over the long-term.
“There are obviously issues around competition law, the rights of minority shareholders and obligations that government has when overseeing legislation,” O’Connor said.
“The proposal they put to farmers and then adjusted that has been brought to us – for the most part we support what they have put down – but there may be some minor amendments to some of the issues that colleagues have raised.”
Those issues include competition within the industry and that the rights of minority shareholders are maintained, he said.
“That’s really important and that the changes support not just Fonterra and its shareholders, but also the opportunities for future generations of the dairy industry,” he said.
NEXT STEP: With a clear mandate, Fonterra will now consult the Government on how to give effect to the changes through the Dairy Industry Restructuring Act and chair Peter McBride is confident that common ground will be found.
Damien O’Connor Agriculture Minister
Good milk price and earnings: Hurrell
Hugh Stringleman hugh.stringleman@globalhq.co.nz
FONTERRA is demonstrating that it can generate solid earnings alongside a decent milk price, chief executive Miles Hurrell told the 2021 annual meeting in Invercargill and online.
But because of the recent downward revision of the FY22 earning guidance, Hurrell added a qualifier phrase “to a point”.
The recent increase in the farm gate milk price forecast to $8.40 to $9/kg milksolids was accompanied by a revised guidance of 25c to 35c, down 5c, as trading margins come under pressure.
High milk prices, paid to farmers via the milk price model, make it harder for Fonterra to make value-add profits and pay higher dividends on the share capital.
Hurrell repeated the value targets for 2030, first published in mid-November, which include a steady increase in annual dividends to 40-45c a share by 2030.
He also foreshadowed a potential return of capital to shareholders and unitholders of 60c by FY24, being a total payment of $1 billion.
“We are also intending to make available around $2b for a mix of investment in further growth and potential returns to shareholders,” Hurrell said.
Fonterra expects to deliver these improved results by emphasising the nutritional components of milk, especially grass-fed New Zealand milk, which has a carbon footprint around 70% lower than the global average.
Co-operative Council chair James Barron said that Fonterra had more work to do to meet the return on capital target of 9-10%, compared with the FY21 result of 6.6%.
Hurrell says that his FY22 priorities included shifting from reset to growth, divesting in Chile and capital restructuring in Australia, and to narrow down and prioritise the nutrition science solutions.
Board chair Peter McBride made reference to the environmental and carbon policies of the cooperative in response to changing consumer requirements.
“Coordinated change at a national level is necessary if we want to keep the commercial competitive advantage that comes with being the world’s most carbon efficient dairy farmers,” McBride said.
With a science-backed approach and nationally coordinated investment, industry and government can solve the significant challenges of methane and water quality.
McBride says the dairy industry can continue to export earnings at a sustainable pace.
Nine procedural resolutions at the annual meeting were passed by votes in the 80 and 90 percentages.
They included 86% approval for increases in remuneration for directors, the first since 2017, and 96% for the appointment of another member to the Milk Price Panel.
GROWTH: Fonterra chief executive Miles Hurrell says his FY22 priorities included shifting from reset to growth, divesting in Chile and capital restructuring in Australia.
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Farmers split on sector’s future
Staff reporter
FARMERS are divided almost down the middle when it comes to their optimism about the future.
Bank of New Zealand’s (BNZ) Shift Happens – Future of Agribusiness report reveals 53% expressed optimism for the future (down from 58% in 2020), while an increasing number of farmers were feeling threatened by change and its impact on the long-term success of their agribusiness (42% to 47%).
Those who were more optimistic about the future were also more likely to embrace the myriad solutions available to overcome current challenges impacting the sector.
The survey also found connectivity was the most influential megaforce on the future of agribusinesses (54%), with 70% of farmers seeing it as essential to the increasing use of technology and data collection.
BNZ head of natural capital Dana Muir says “farmers and growers are investing in their operations and reducing impacts, but it’s clear the pace and scale of change is daunting”.
“Increasing environmental regulation, the rise of the conscious consumer and covid disruptions are hitting all at once. But with strong commodity prices and strong demand for New Zealand food and fibre, many farmers now have the flexibility to invest in meeting the challenges head on,” Muir said.
“New Zealand’s agribusinesses understand the importance of the health of climate, land, and water to the future performance of their businesses and products. But it’s the ability and support to adopt solutions which needs to be the focus,” she said.
BNZ chief economist Paul Conway says rural connectivity is critical, with 70% of farmers and growers saying it is a key influence within their agribusiness.
“Digital tools and data collection is increasingly at the heart of sustainable agriculture,” Conway said.
“It is driving the ability for farmers to make accurate decisions on how to measure and manage critical future considerations like on-farm emissions. But without strong rural connectivity, farmers are effectively shut out of being able to take advantage of new technologies.”
Muir says farmers and growers are increasingly attuned to what the market wants and are answering the questions posed by conscious consumers about where products are made, how they are grown and their carbon footprint.
“It’s great to see work to increase sustainability and efficiency already under way across most New Zealand farms because consumers, the market and governments have spoken and there is no going back,” Muir said.
“The half of the sector that see threats from the level of change in their agribusiness need to be supported to embrace solutions and systems which will position them to be the farms of the future.”
Other findings include: • Supply chain risks and labour shortages are weighing heavily on farmers and growers, with 45% saying the closed border was presenting immediate risks to production. • Nearly three-quarters of respondents (73%) said the pace and scale of regulatory change was too much and too fast, with 56% suggesting the pace and scale of change driven by the market was “about right”. • 42% will consider adjusting their land use in response to consumer demand. • 96% of farmers have noticed an increase in the costs of managing environmental
impacts over the past five years. • 44% had already or were planning to reduce farm inputs such as chemicals and fertilisers, especially dairy farmers. • More than 50% use sustainability strategies that incorporate compliance obligations, while 59% are already using some form of farm environment plan.
DISADVANTAGED: BNZ chief economist Paul Conway says without strong rural connectivity, farmers are effectively shut out of being able to take advantage of new technologies.
MORE:
Read the full report here: https:// www.bnz.co.nz/assets/bnz/businessbanking/Agribusiness/pdfs/BNZ-ShiftHappens-Agri-Report-2021.pdf
WRITING DUO: Ali Spencer and Mick Calder, co-authors of forthcoming book Meeting Change: The NZ Red Meat Sector Story 1997-2022 due out next year.
A quarter century of evolution
A NEW book, to be published next year, will mark the past 25 years for the New Zealand red meat sector and to celebrate the NZ Meat Board’s Centenary.
Meeting Change: The New Zealand Red Meat Sector Story 1997-2022, written by Ali Spencer and Mick Calder and edited by Janet Tyson, covers the quarter century of evolution for the organisation and its place in NZ’s wider red meat sector.
The book finds the sector used a mix of collaboration, ingenuity, innovation and sometimes number eight wire to survive and thrive through a period of volatile political, cultural and economic uncertainty.
The authors’ research included interviews with key people, including Sir Graeme Harrison, Jeff Grant, Mike Petersen, Tim Ritchie and Craig Hickson.
The book is the third in a series of histories about the sector: the first being Golden Jubilee, edited by Dai Hayward (1972); and the second Meat Acts, written by Janet Tyson and Mick Calder (1999).
“We found a fascinating story, about one of New Zealand’s most significant export-earning and employment sectors and its complex, myriad changes over the past 25 years,” Spencer said.
“The challenges required great innovation and collaboration in an exciting era for the sector, which should be proud of what it has achieved.
“The sector has proven it is capable of handling any change that might be thrown at it in the future and that there are many reasons to celebrate during the New Zealand Meat Board’s 100th year.”
Meeting Change will be published by Mary Egan Publishing in mid-2022.
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