Federated Farmers Dairy Chairman, Lachlan McKenzie

I have just had a reporter phone, saying she is looking at why dairy farmers are so optimistic at the moment. I replied that we had just come through the busiest time of the year and the weather, by and large, has been very kind. No major storms, most areas have had rain and now it is relatively warm, so the grass is growing. Milk product prices have moved up over the last two months and world milk stocks are not plentiful.  The down side is our dollar moving up. However, overall indicators point toward a little more money coming the dairy farmers' way.

More good news comes with Fonterra's announcement of a forecast payout of $5.10, with an extra 35c to come in October. Last year's payout of $5.20/KgMS is welcome news but it is disappointing that only one cent has been retained to grow the business.

Fonterra's long awaited capital structure review is now out so it's time for shareholders to read up, attend a meeting or two and discuss it with other dairy farmers. There are still a lot of questions that all shareholders need to be asking to ensure they fully understand what these changes mean to Fonterra and for themselves going forward.

Step one of the capital structure review is to allow the holding of shares of up to 120 percent of production. However, what commentators have missed is that dividends (added value returns) are to be paid on shares held, not on production, as is the current practice for co-ops.

Step two has recognised that shares will not be traded openly, so will need to be valued accordingly. The share price can still move up or down so farmers will still need to understand the share price has not been fixed. It is effectively fastened to the current share price until the new value method goes above $4.52 and it can still fall below $4.52 if the open market value falls.

Other aspects that need to be clearly explained to farmers are the farm gate milk pricing mechanism and the retentions from profit policy, along with better explanation of the strategic direction of Fonterra. We need to know what areas of investment are being looked at and what the likely return is for farmers. The canny farmer wants to know what's in it for them.

May the rest of the season go well for you.

Regards,

Lachlan McKenzie
Chairman
Federated Farmers Dairy

To contact Lachlan, please click here, or call 021 382 442

Sharemilking news

The review of the Variable Order Sharemilking Agreement is progressing well, with what we hope is the final meeting planned for early October. We are hopeful that the new agreements will be ready in the New Year.

Good news on regulated raw milk

The Minister for Agriculture announced earlier this month that the Regulated Raw Milk Fonterra is compelled to provide to independent milk processors for the 2010/11 season will be priced at the Fonterra farm gate milk price, plus a margin of 10 cents per Kg milk solids (kgMS). This is an improvement on the current formula which a Ministry of Agriculture and Forestry (MAF) review found had been underpricing for the past five of the six seasons. The new formula will encourage independent milk processors to make good business decisions, which may include sourcing their own milk from the farm gate, in turn giving farmers a fairer price for their milk.

The farm gate milk price is the price that Fonterra pays its own farmers and does not include the value-add component. By adding a margin of 10 cents per kgMS, Fonterra offsets the advantage that having a uniform supply of milk, rather than a seasonal curve, gives independent processors. The total volume available for the season will remain at 600M litres.

The Dairy Industry Restructuring (Raw Milk) Regulations lies within the Dairy Industry Restructuring Act (DIRA), which allowed the formation of Fonterra.

A closer look at the Dairy Industry Restructuring Act (DIRA)

With the recent change to the pricing mechanism for Regulated Raw Milk comes the opportunity to refresh our knowledge of the Dairy Industry Restructuring Act (2001) and its intention.

The establishment of the DIRA sought to promote the efficient operation of dairy markets in New Zealand by regulating the activities of Fonterra, thereby ensuring that the market for dairy goods and services is contestable. A number of pro-competitive measures were put in place to ensure this, including:

• Open entry and exit,
• contracting rules,
• the 20 percent rule and
• the Raw Milk Regulations.

There are also sunset clauses built into the pro-competitive intent of the DIRA based on the amount of milk collected by independent milk processors from their own sources.

To read more on the DIRA please click here.

Raw milk cheeses

Federated Farmers is pleased to see that the New Zealand Food Safety Authority (NZFSA) plans to allow cheeses made from raw milk (unpasteurised milk).  This had previously not been allowed due to health concerns. After a reassessment the NZFSA found that, for the majority of the population, the risks would be minimal. Consultation with the industry is now taking place, but it is unlikely that manufacture will be allowed before mid 2010. You can find more information by clicking here.

Commodities (meat) levy vote

Our thanks go to all those dairy farmers who took the trouble to register and then vote in the recent commodities levy (meat) order. Meat & Wool New Zealand figures show that of the 7,820 separate farmers who voted, 1,529 of those were dairy farmers. Not bad for a sector that apparently needed waking up! Well done! The results were close, with 51.52 percent of those who voted in the ‘one person, one vote' saying yes (48.48 percent said no) and of the votes based on stock numbers, 59.32 percent said yes (40.68 percent said no).

Emissions Trading Scheme

Federated Farmers is disappointed with the Government's recent amendment to the proposed Emissions Trading Scheme (ETS). The Government insists that the scheme will cover all sectors and all gases from those sectors, choosing to ignore many of the issues Federated Farmers raised through the ETS review process earlier this year. The Government has however listened to the Federation's call to align itself with the Australian scheme, which includes agriculture in 2015. Since the announced amendments, Federated Farmers has made some progress, but we will be continuing to lobby hard for farming over the coming weeks and months.

Rural broadband

You will have caught up with the news that Federated Farmers' intensive work with the Government has seen it announce new targets for rural broadband of $300 million, up from the $48 million initially proposed. Due to lobbying from Federated Farmers, rural New Zealand will receive quarter of a billion more than initially planned.

Robin Barkla, from the heifer pen

While on a break from drafting yearling heifers in preparation for their big day out with our recently purchased Jersey two year old bulls, I asked my farming partner his views on a couple of issues, one being the new proposal recently announced by Fonterra and the other being the matter of retentions.

On the new proposal announced by Fonterra, I asked him if he agreed with Fonterra staying 100 percent farmer owned and controlled. He replied by saying that it had been clear for a long time that, given their views on co-operatives, farmers didn't want outside investors. He also thought that getting a return on dry shares would be a good incentive to remain in the co-op. However, we did question whether it would bring in enough money and wondered if in five years we would all have to return to the drawing board.

I also asked if he thought he could buy into the idea of a policy on retentions. After chucking some ideas around, we both agreed that if Fonterra provided farmers with a strategy (a business plan) that was clear, understandable and that ‘spun our wheels', we would support it by providing capital via retentions. Even if this meant a lower payout than our opposition, the rationale would be sacrifices short term, for a long term gain. This could then bring in some of the extra capital that would take us beyond five years.

I then asked if he felt he had ever been consulted over whether he would provide capital via retentions, or for that matter, via other forms of capital contributions. This was asked in reference to an article I had recently read in the paper, where the reporter stated that by demanding Fonterra pay out all its profits, Fonterra suppliers were to blame for the predicament that the co-op now finds itself in. What a load of rubbish. Fonterra had never discussed retentions, or any other form of capital contributions from farmers, prior to the proposal released on Friday, with its suppliers.

Finally, I asked if he knew what focus Fonterra had for this year. He answered that he assumed it was to maximise the payout to us, the suppliers. I asked him how he would feel if the directive of Fonterra was to trump other New Zealand dairy companies on this year's payout.  He answered that this would be the ultimate in poor governance!

I urge you to ask your directors plenty of questions at the meetings that are planned prior to the AGM in November. Ask them about retaining earnings from the value-add portion of the shares and challenge them to provide a clear picture of where they see Fonterra in 10 years so that they can see how you react and so they can see you continue to believe in Fonterra.

Robin Barkla
Executive member
Federated Farmers Dairy

To contact Robin, please click here or call 027 218 213.

‘Trees for Bees’ programme

The Federated Farmers Bee Industry Group has established the ‘Trees for Bees' programme in order to ensure that bees have the opportunity to gather pollen and nectar, providing the vitamins and minerals required to maintain optimum hive strength and a viable pollinated bee force.

Farmers will appreciate that posts and wire offer little to bees and the practice of denuding the countryside of trees, gorse and broom has threatened the health of bees.

The Federated Farmers Bee Industry Group is producing brochures, by region, which make suggestions about what you can plant throughout your farm and along the riparian margins in order to support bee health. The brochure will also include what plants and trees by region are banned by regional councils and highlight those which the bee industry do not want to see planted, including Tutin.

Sustainable farming encourages natural pollination. The honey bee is responsible for over 80 percent of all pollination and relies on programmes such as these. The brochure will be available on the Federated Farmers website from mid-October.

Raw milk for drinking must be clean milk

Being able to drink unpasteurised, raw milk is seen as one of the advantages of having your own cows. However, the very young, the old, the immune-compromised and the pregnant are at greater risk of severe consequences if they succumb to bacteria that can be present in raw milk. To reduce risk, people in these categories would be wise to drink pasteurised milk. For more information, click here.

Do you suspect an exotic disease or pest?

The Biosecurity Act carries massive penalties, so all farmers are reminded of their national responsibility to report any suspected exotic pest, plant or disease immediately. The Exotic Disease and Pest Emergency Hotline, 0800 809 966, is manned 24/7. That way the Ministry of Agriculture and Forestry Biosecurity can investigate and advise as necessary. All calls are kept in confidence.  It is also advisable to let Federated Farmers know as well on 0800 327 646.

Federated Farmers meets with MAF Biosecurity

Imports of grain from Australia and Palm Kernel Extract (PKE) are regulated through the Import Health Standards. Treatment is necessary prior to entering New Zealand to ensure any harmful pests or diseases are destroyed. The Ministry of Agriculture and Forestry Biosecurity has invited some Federated Farmers members to observe a ship clearance process after a previous meeting discovered issues surrounding contamination and clearance practices.

Cash flow management and software seminars

Federated Farmers is hosting FREE seminars, presented by Westpac Bank and CRS Software Ltd, as part of a series covering relevant and practical topics, valuable to your farm business. These two hour seminars will be priceless for farmers who would like to improve their cash flow processes and management or for those facing financial difficulty.

The seminars will include:

• What our economists have to say about the current rural financial climate.
• The current financial climate from a personal perspective.
• Short term cash flow planning and longer term financial stability.
• Debt structuring and financial management.
• How your bank can help you.
• Accounting software that can assist in the cash flow management process.

The seminars will be held across 30 venues throughout New Zealand between 6 October and 10 November 2009.

For more information or to register, please call 0800 FARMING (327 646) or click here.

Tight management for tight times

DairyNZ would like to ensure that farmers are in the best possible shape this Christmas, despite the challenges presented by the current economic climate. They are currently working alongside 30 farmers across New Zealand who excel in cost control and maximising the amount of pasture eaten. Monthly on-farm field days will discuss key management decisions. To view the field day schedule, click here. Alternatively, for more information you can visit the DairyNZ website by clicking here.

Hot water costing you a fortune?

Let nature pay with LEAP! Ring LEAP for a free quote on solar or heat pump water heating. Both options qualify for Government grants. For more information visit our website by clicking here or phone us on 0800 246 810.

ACC CoverPlus Extra puts you in control

This package is designed to give you an agreed amount of lost earnings cover. This way you know exactly how much you'll receive each week if you're injured and can't work, whether the injury is work related or not. For more information, check out our website by clicking here.

Take a break from calving with Novotel Hotels

Accommodation and breakfast is free for up to two children under 16 years when the family stays at Novotel hotels. Choose from Queenstown, Wellington, Rotorua, Hamilton and Auckland. For membership discounts click here  or phone 0800 444 422 and quote Federated Farmers.

DataDot DNA

DataDot DNA is like DNA for assets, that provides essential legal identification. DataDot DNA gives a permanent identity to farm equipment, personal property, corporate assets and cars. Stop theft now with a 25 percent discount for Federated Farmers members. Phone 0800 4 datadot or click here to visit their website.

Employment contracts and agreements

The Federation's online shop stocks a range of contracts to assist with your farm business.  Remember, it's a legal requirement to have an employment contract for EVERY employee so if you don't have a current employment agreement, then order one now by calling 0800 FARMING or  click here. Employment contracts and agreements are available in both electronic and hard copy formats for your convenience.

Contracts, agreements and leases

These include land, stock, contractor, sales and purchase, agreement to grow, log books, access pads and Over Dimension Certificates. Contracts, agreements and leases are available in both electronic and hard copy formats for your convenience. To purchase, call 0800 FARMING or click here.

Great recommendations

Federated Farmers would like to extend a special thank you to all members who have sent in their recommendations for new members - we've received a huge number of recommendations which is great as we need all farmers to chip in and help support the work we do.

Please remember that if you have any issues or queries you would like to discuss, please feel free to contact Federated Farmers on 0800 FARMING (327 646) or contact your local Federated Farmers Dairy representative or one of the Executive team as listed below.

Federated Farmers of New Zealand
PO Box 715
Wellington 6140
Tel:  04 473 7269
Fax: 04 473 1081
www.fedfarm.org.nz

Staff Contacts

Dairy policy advisor
Ann Thompson
Phone:  0800 327 646

Executive Contacts

Chairman
Lachlan McKenzie
Phone:  07 332 3440
Mobile:  021 382 442

Vice-chairman 
Willy Leferink
Phone:  03 307 2666
Mobile:  021 796 037

Vice-chairman
John Bluett
Phone:  07 825 9709

Executive
Robin Barkla
Phone:  07 323 6958

Executive
Andrew Hoggard
Phone:  06 328 9677
Mobile:  027 230 7363

Sharemilkers Representative
Jeff Bolstad
Phone:  07 884 4127

A full list of the Federated Farmers Dairy team can be found by clicking here.