Peak Rights - The NZDG DilemmaThursday, Dec 14, 2000
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
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The unpublished figures showing that the North Island dairy herd declined by 78,000 cows last year is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.