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Dairy Industry Investments

Greetings Readers

Bega the Aussie Dairy Coop with the valuable brand is moving towards agreement with Bonlac to meet the requirements of the dairy board joint venture for access to the Bega brand and processing facilities for a substantial capital sum and ongoing fees

It seems that progress toward consolidation of the Aussie Dairy Industry is now being driven by the Kiwi component, particularly the capital, to fund these structural changes.

The NZ industries focus on the Mega Merger has taken much of the heat of the normal critical inspection that would have followed this sort of radical proposal for new structures and relationships in Australia.

The almost un-natural willingness of the Aussie industry to embrace the NZ proposals suggests they may know they are getting a better deal than they deserve.

What is the investment objective? How is the NZ farmer/shareholder to gain a reward for this investment? What is the risk? How will the farmer/shareholder know the investment has met the planned objectives?

The NZ dairy industry in the past has to take some care to ensure that it invests capital in projects that give a return far better than the standard business return over a forecast period. One of the strengths of the cooperative industry has been the informal mechanism that has balanced, on farm investment returns, against processing investment returns.

If on average existing the shareholders of the industry can get an average marginal return of say fifty percent from on farm development investment and the industry is setting its standard for new investment return at say ten percent then the industry will head for a disastrous outcome.

The relative payout level is the primary controller of on farm investment. Payout retentions to offset poor performing assets will give joy to the critics of the industry but not for the reasons that they currently promote.

Industry investment measured by corporate standards of success will not fit well with farmer shareholders who have invested in their farms and factories for a total return. Continuing investment on farm development must be in balance with the industries development.

Can farmers be confident these recent proposals measure up?

Good farming

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