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Where Does the Risk lie With Dairy Co Investments

Greetings Readers

The Dairy industry Annual meetings tour is showing the distance between the new marketing philosophies of the Board, the politics of the inter company scramble for influence and position and individual farmer’s belief that there will be a “something for nothing ’’ bonanza as the result of corporatisation.

There seems to be no questions being raised about the current round of investment propositions being undertaken in Australia.

NZ Dairy Group has confirmed it purchased seven percent of National Dairy Foods for $55m – a company that for the past four months has been in decline in terms of value and in terms of effectiveness.

The Bonlac joint venture is looking less and less viable for the same reasons plus too large a debt.

Kiwi’s purchase of 52% Western Australian Peters and Browne is the most commercially stable of the three but it like all the others suffers from lack of total control by the NZ investor.

The instability of the Australian dairy foods market following deregulation will take some time to sort out and it could be that milk production would decline dramatically in the short term.

Do NZ farmers want to be in a situation where they have to put good money after bad to enable there partner companies to survive that transition. Have the buyers of shares considered why the sellers want out?

Joint ventures and share investments are just that – a share in the operations of the company. It is contrary to the principles of a good producer cooperative for risky equity investments to be made in environments where the cooperative does not have control of actions and outcomes in periods of adversity.

MD Foods the large Danish Dairy Cooperative which invested heavily in the UK dairy market was left with debts of 100’s of millions of pounds when the corporate investors cut their losses and abandoned their shares. Those losses were born by the Danish dairy farmer.

It seems ironic that those critics of the cooperative structure who have in the past focussed on the lack of investment capital as being the reasons for the corporatisation of the industry remain silent. Funds are found with ease to initiate piecemeal investments in unstable markets by companies that should be merging before embarking on journeys that appear to be little more than executive ego stroking and director one-upmanship.

The New Zealand dairy industry markets to the whole world – don’t let the executives forget it! Capital should be invested for the best return and that in a cooperative will be reflected in the best farm gate price for milk. If there are short term and long term production and marketing strategies – let them be known.

The structure is in place to cooperatively manage and expand the dairy industry. Let’s get on with consolidating the structure into one. We have been warned that delay is costing. Some of the current piecemeal activities have the potential to be a business embarrassment. But what is worse the industry is at risk of dissipating the real bonanza of the dairy industry – its future.

I hope the grass is growing at your place.

Good farming

The Editor

Contact: editor@farm.net.nz




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