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Fonterra Sets Sail

Greetings Readers

The passing of the Dairy Industry Restructuring Bill yesterday is a significant milestone and can be either seen as the bringing to a close an outstanding era of successful farmer run dairy cooperatives or as the foundation of a bountiful future for as yet undefined group beneficiaries

This undefined group has in the farmers mind been assumed to be the farmer shareholders but perhaps this is now not as certain as the outside expert interlopers set about on their peevish missions to demand Fonterra perform to their wishes and for their benefit.

It is clear that the environmental lobby have seized the opportunity to demand that their costly environmental standards be imposed by Fonterra on its suppliers or they will threaten its international marketing strategies.

But even more insidious is the imposition of artificial barriers to the protection of that most important element of company security - the certainty of raw milk supply.

How the market will use this the 20% free access is unclear but it will certainly have the potential for friction between suppliers as each shareholder exercises the legislated right to supply up to 20 percent of their milk to an alternate buyer at a negotiated price.

The strength of the industry in the past lay in the certainty of an industry payout overlaid by a company premium which was supported by their company’s accumulated resources and investments. This legislation is a major shift in the equity of the “all for one and one for all” philosophy which suppliers have been used to.

But the major beneficiaries of the legislation will be consumers. The frantic claims by consumer groups on the last round of local market dairy price rises for a position of privilege or subsidy is frightening in its prospect and shows the consumers expectation of the legislation.

If the structure legislated for does not provide the expected outcomes what is the chance that the consumer lobby will demand that producers subsidise supplies to the local market?

But the final bit of Fonterra news claiming that Kiwi may have been trading outside the Dairy Board Act seems set to reignite old animosities between the two companies. While nothing is proven, Kiwi has always had a hard nosed approach to its position in the scheme of things. Could it be that Kiwi was testing its lines of supply should the merger not have proceeded?

Machiavelli may be alive and well in the management philosophy of Kiwi’s business culture.

Is it a fit philosophy for Fonterra?

Good farming

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