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Peak Rights - The NZDG Dilemma

Greetings Readers

A group of suppliers from NZDG are to be commended and supported for standing up and identifying the flaw in the peak rights proposal to manage the capital contribution required for dairy processing expansion.

Peak rights are not a suitable capital contribution mechanism for shareholders in the mature dairying areas of New Zealand. This cooperative processing industry has always had problems balancing its enthusiasm for growth against the risks of production decline.

It is only a decade since some major companies were paying payout incentives for new milk producers. Now peak rights could be seen as a disincentive to existing producers but quite acceptable to new entrants on conversion land who can transfer the capital cost to the vendors of the land they are purchasing by reducing the price paid.

Company directors may claim peak rights are to do with allocating the capital of the industry fairly and the need to ensure that the value of shares are not watered down by new entrants.

The reality may be that all we are experiencing is a relocation of the production facilities of the industry to the South Island.

The unpublished figures showing that the North Island dairy herd declined by 78,000 cows last year is an early warning that all is not well with milk producers and the winds of change may be gathering.

Nothing to do with peak rights and shares, but all to do with the reality of land use and alternatives becoming available for this generation capital rich of dairy producers.

The description sunset company has been used to describe NZDG - not in a derisory way - but as a realistic description of the social, environmental and economic conditions now pressing on producers in the original home areas of NZDG

Fifteen years of milk volume increases, farm amalgamations, dairy conversions and average herd size increases has had a social toll on family dairy farmers, sharemilkers, contractors and employees to continue to meet the exacting standards now placed on producers.

Comparisons between dairying and alternate lifestyles and other land uses appears to be uppermost in the minds of many NZDG suppliers for good and sensible business reasons.

The NZDG vote tomorrow (15 Dec) will be interesting. Whatever the outcome it will have significant effects on the future well being of the whole industry.

Good farming

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