Of milk and the former CraFarms
Released 30 Jan 2012
Bruce Wills is the President of Federated Farmers and a version of this was published in the Sunday Star Times on 29 January 2012
Milk regulation is turning into some latter-day Circus Maximus. With the crowd baying for its milk, Fonterra and its farmers are in the arena anxiously looking to our patrician politicians for a regulatory thumbs-up, or a thumbs-down. In the case of this latest attempt at reform, it's the thumbs-down to more milk competition on supermarket shelves. Forget encouraging domestic competition to Fonterra, which is surely what consumers want. Instead, regulation is allowing Fonterra's competitors to cherry pick more lucrative export markets. I don't think dairy farmers will be full of joy and happiness to see the bad old days of the meat industry is now the role model for their future.
There doesn't seem to be a ‘NZ Inc' approach in the way Government is heading with milk regulation. Very few of the ‘independent' processors getting Fonterra's subsidised milk, bottle it then sell it in dairies or supermarkets. When I mean subsidised, it comes to them virtually at cost. Government now wants Fonterra to make up to 750 million litres of milk, about five percent of New Zealand's total production, available to its direct competitors. This is meant to give new entrants a leg-up but instead of competing domestically, most of it follows the money offshore. It's New Zealand milk competing with New Zealand milk overseas. That's also where the profits head if a processor has a degree of foreign ownership and many do.
So which is worse? Hamstringing our largest Kiwi owned exporter or that the ex-Crafar farms will have a Chinese name on the land title, but with Kiwi workers and even better, sharemilkers?
Even if we take all of the farms sold to foreigners in the past ten years, it's less than two-percent of our pastoral farmland. That doesn't include the ‘once were foreigners' who have become Kiwis and I know a few. The SOE Landcorp will manage the ex-Crafar farms and the door to China is now open to Landcorp; of course dependent on any legal challenge.
The biggest explanation for why Kiwis didn't buy the ex-Crafar farms comes down to the receivership saga. The best and simplest solution would have been for Crafar empire to have been sold off as individual going concerns. Since it imploded in 2009, 150 dairy farms have been sold up and down New Zealand and mostly to Kiwis. Federated Farmers knows approaches to buy individual farms were rebuffed by the receiver as they wanted the big bang, all or nothing. That's what they got, for only those with deep pockets locally, like Sir Michael Fay, or an overseas buyer like Shanghai Pengxin Group, were ever going to be in the frame. I'm absolutely convinced the rural market would have absorbed these farms, but like the absence of real local competition in fresh milk, we need to ask why?
What I can comfortably predict is that the sale of the ex-Crafar farms and proposed dairy industry regulation will not make one jot of difference to the supermarket price of milk. If someone's skimming the cream it's not farmers. In a one litre retail carton of milk the farmer's share is around 360 millilitres. The rest is made up of processing, distribution plus wholesale and retail margins. Oh, we shouldn't forget GST too. These far outweigh what a dairy farmer gets for actually producing the milk, let alone what they're doing to improve the farm environment. Yet why does everyone, including our politicians, run a mile whenever you put the spotlight on the word ‘supermarket'. If it's about genuine price discovery, can I suggest we start with the supermarkets.
For more information:
Bruce Wills, Federated Farmers President, 06 834 9704, 027 234 1516
