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Fonterra like Air NZ?

Greetings Readers

The formation of Fonterra seems on balance to be off with a good start in terms of progressing new international operations.

Some apparently excellent deals that have been secretly progressed during the merger discussions have been announced and a general feeling of satisfaction with the new structure seems to be emerging.

However without wishing to detract from the expectation, hope and aspiration that shareholders are placing on Fonterra there is a need for a good dose of rural realism to temper the excitement.

Air NZ is an example of the ease with which NZ companies which have performed well locally but foundered badly when expanding internationally when purchasing offshore companies.

Even with all its skills Air NZ paid too high a price for Ansett a poorly managed airline. Bur even worse they changed their company’s leaders and management at the same time. Promised the shareholders that all was well for the long term. Then when reality struck with the grounding of the purchased airline claimed it was not a problem as they had plenty of cash and moved at an incredibly slow pace to minimise the obvious threat to profitability.

God willing this should not be a similar scenario for Fonterra but it has many of the same early characteristics and is driven by the same need – internationalise or be swamped by the bigger players.

Last week’s Westpac Trust Agribiz publication rightly points out the priority for Fonterra shareholders is the improvement of on farm efficiencies to protect the each farm business from the risks inherent in the dairy industries new excursions into international investment.

While shareholders must inspect closely the sensibility of the new joint ventures and developmental investments they must also ensure that the rate on farm developments and production efficiencies also accelerates.

Without a better farm production efficiency than our competitors there is no possibility of surviving the hazards of international marketing irrespective of the processing and marketing structure that is put in place.

This is not a time for sitting back and saying the job is done and Fonterra will take care of all, for as Air NZ has found, seemingly strong structures can become a shaky as a house of cards when things go wrong

Rural realism of the past always put trust in the production of real products not slips of paper of variable value.

Good farming

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