Fonterra concedes farmgate milk price won't rise until international production rebalances lower, chops payout to levels last seen in 2006-07

This is the Fonterra statement released today. The NZ dollar has fallen. Dairy payout history is here.

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Fonterra Co-operative Group Limited today reduced its forecast Farmgate Milk Price for the 2015/16 season from $4.15 per kgMS to $3.90 per kgMS.

When combined with the forecast earnings per share range of 45-55 cents, this means a total forecast available for payout of $4.35-$4.45 per kgMS and would currently equate to a forecast Cash Payout of $4.25-$4.30 per kgMS for a fully shared-up farmer after retentions.

Fonterra is forecasting its New Zealand milk production to be at least 4 per cent lower than last season as New Zealand farmers respond to the ongoing low prices by reducing herd size and feeding significantly less supplementary feed which is expected to have an impact on this Autumn’s production.

Chairman John Wilson said difficult conditions in the globally traded dairy market have put further pressure on the forecast.

“This further reduction in the forecast Farmgate Milk Price is the last thing farmers want to hear in what is proving to be a very challenging season. At times like this the business needs to do everything it can to drive every last cent back to farmers.

“Management is fully focused on reducing cost and generating cash right across the business. The continuing lift in financial performance and our balance sheet strength will provide opportunities to support our farmers’ cash flows. We will provide an update on this at our interim results on March 23,” said Mr Wilson.

Chief Executive Theo Spierings said dairy exports and imports had been imbalanced for the past 18 months due to European production increasing more than expected, and lower imports into China and Russia – the two largest importers of dairy.

“The time frame for a rebalancing has moved out and largely depends on production reducing – particularly in Europe - in response to these unsustainably low global dairy prices.

“The long-term fundamentals for dairy are positive with demand increasing at over 2 per cent a year due to the growing world population, increasing middle classes in Asia, urbanisation and favourable demographics.

“Our forecast is based on no significant changes to either supply or demand globally before the end of the year. However, a reduction in the supply available for export before then could mean prices recover earlier than currently expected,” said Mr Spierings.

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146 Comments

Forecasting no significant changes before the end of the year, sounds grim, but when have Fonterra ever been close to right?
The long term fundamentals may sound positive to fonterra, but 2% per year demand growth isn't gonna cut it, production can up 5% easily in a normal year.
Land prices have screwed the farmers ability to make a profit. To run the kind of system, that can make money at this payout, you need land prices to come way down. I thought that was going to happen in '08, it didn't, probably will this time though.

Yup completely agree skudiv.... back in 2008 the industry dodged a bullet, pity in a way it didn't happen then, a smaller mess to clean up than this time around.

Not to worry, low interest rates mean farms are still averagely affordable. - Rod

don't worry, just in John Key says everything will be right in the long term...(eyes rolling)

Is this the lowest 'real dollars' milk price ever? I'm not feeling it at the supermarket.

Here is a link to our dairy history payout page http://www.interest.co.nz/rural-data/dairy-industry-payout-history

So it's close to the lowest nominal price ever, but nominal does not account for the phenominal rise in farm input costs over the last decade, or even the lower rate of CPI.

The link between the payout and the cost of milk at the supermarket appears to be the same as the link between the OCR and the banks interest rates.

Those farmers in the EU and the USA are borrowing money super cheap and keeping production up. I have a friend in the Netherlands I asked him what he thought farmers would be paying for money he thinks %1.6, less in Germany, so why cut production? %90 still goes local trade, you are only talking the %10 off the top, but that is a huge mountain of milk for us to deal with. The EU stored 9800 tonnes of powder last week, we have driers closing in NZ because the price is too low, ones like Pahiatua which just started up in August and one up north.

In a few years we added 1.2 million cows and it looks like there was no idea in the industry, what to do with the extra milk ,except sell it as a commodity to China and it took a lot of new capital spending to get it processed. Leaving Fonterra with a lot of debt in tough times.

These ultra interest rates are going to destroy a lot of capital who's going to blink first?

A farming contact in the Netherlands has told me 600 farmers in Holland are under bank administration. This number is considered very high over there. So it doesn't sound like it's all roses over there.

The whole damn world is in debt chasing unicorns.

I love unicorns, they provide me with entertainment.

*Unihorns

that ain't working, that's the way you do it......:)

At some point Fonterra will have to write down the value of its commercially sensitive inventory stock The balance sheet may not look as impressive .At no point in the above article do Wilson or Spiering acknowledge that they and others got it wrong, just blame everyone and everything else .As record prices in early 2015 were being paid per hectare in Waikato, Fonterra and every other office bound moron could not see the storm brewing. A historical revision of the forecasts given by the bank and rural economists , Fonterra and every other Tom will show the absolute failure, and this governments belief that the rising Chinese middle class will prop up New Zealand for decades to come .Fully expect resignations. White gold

Businesses that supply Fonterra are railing against what they say are crippling payment demands that no other company could get away with.
http://www.radionz.co.nz/news/national/298354/suppliers-accuse-fonterra-...?

That is just not on, using smaller businesses bank accounts to fund themselves.

Aw c'mon sluggy, that's what supplying businesses do to the farmers, who are mainly small businesses - payout goes up so the suppliers increase their fees exponentially and when payout goes down they keep their fees at the higher payout level. ;-)

The rural sector now faces a 'perfect storm' because oil prices have risen and fuel prices have followed suit, increasing both in-NZ operating costs and international transport costs. A lower dollar -a likely outcome of falling confidence in NZ- would exacerbate the fuel costs predicament.

We are already seeing increasing numbers of empty retail and commercial premises, as spending declines.

And district councils continue to squander money and continue to put up rates.

It's all symptomatic of what happens when idiots are in control. .

Its called 'Ineptocracy'.

This "perfect" storm was however foretold. Just many with greed in their eyes continued to buy into the ponzi scheme that is farm prices convinced that they could retire tax free, oopsie.

"councils" yep very much so.

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Interesting to review staffing numbers since the new CEO took over.

Some say has gone from as many as 15,000 to over 18,000+.

Assuming say $ 100,000 costs per head - Salary / Office / Expenses then using very rough numbers that's ~ $ 300 million pa.

In present value terms and assuming continued employment at say 5% discount rate that's effectively an annuity and if my maths is correct valued at $ 6,000 million or $ 6 Billion.

Heads need to roll big time in Fonterra and I know where I would start.

The organisation is totally out of control and simply cannot support current costs structures.
What are they doing differently of scale than they did say 5 years ago ?
At the margin they just cannot justify these massive staffing increases - if in fact these numbers as reported are correct.

To quote Buffett - There is only one strategy for commodity producers and that is to be low cost delivered to the customers.

They (higher staff #s) are needed to pay mortgages and rates - councils have adopted the same circular work scheme policies since Helen Clark empowered councils to branch out into business endeavours.

Sure, commodity producers survive, or compete, by delivering product at the lowest possible cost to their customers. But the strategy needs context. Lowest possible production costs means lowest possible input costs and lowest possible margins. The strategy is one to favour the business customers, enabling them to buy as cheaply as possible, add value and sell expensively.

And how do we imagine we can support an added value society via a strategy like that. Education? Healthcare? ACC? Welfare? And the rest of it? Right down to libraries and rural tar seal. Social expenditure depends on added value in the system.

The fact is, we can't support an added value economy on a commodity strategy. And we don't. We borrow money from elsewhere and sell assets wherever we can to make up the difference.

And this is the failure of strategy that runs from the government, through MPI, Fonterra, the bank lenders, and industry advisers . The idea appears to be that we could create necessary value via increased volume. If you were looking for a half-baked business idea, when New Zealand has little or no influence over the global volume - value equation, you couldn't do much better than this.

And meanwhile, added value in all food products is moving firmly into the natural, the authentic, the the sustainable, the proof of care in provenance. Higher and higher external inputs into New Zealand dairying are both destroying the commodity strategy (such as it is) and also, by their nature, fast compromising our available added value. A failure on both sides of the fence.

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Dosnt matter, according to the other guy/article, we just drop interest rates, and continue smiling like nothing happened.

Overseas people will soon start swapping alcohol and stone axe heads for our land ......... Just hope they dont get into the business of shrunken heads. New Zealanders become the new modern slave stock to the overseas rent lord.

What can we do about it - start taxing property, enforcing the rules - meanwhile my house just went up another $350

What would the payout forecast be if NZ was completely organic? Who in the World could compete with organic, grass-fed, NZ cows?

http://www.stuff.co.nz/business/farming/76628312/Fonterra-to-pay-organic...

Organic milk powder is worth $14,000 per tonne.
Commodity milk powder $2,700 per tonne

Agreed organics is an avenue we should be pursuing intensely....the problem with NZ commodities (especially dairy and timber), is that no one is thinking beyond the square paddock. Basically it's a 'grow/produce the best quality product as quick as you can and ship it off for others to refine and up-market' type of mentality that relies entirely on a good return for bulk production and distribution.
The vagaries of unforeseen costs or others coming onboard to flood the market quickly put a spanner in the works
Until we do our own quality product refining and start exporting up-market produce using the glut of raw material we have we will miss the unique chance of creating niche industries that employ thousands in newly created plants/factories that revive both new and old skills.
And if we look at the opportunities organic milk and the associated produce we can deliver from it...the sky's the limit.
In both dairy and timber, we are dealing with two industries where the basic needs of humankind have changed little over millennia - we all still love our refined cheeses/cream based products and we need processed timber/furniture. But what we have done is failed to appreciate the demand and instead closed mills/factories to then bulk ship it all off for others to proces/refine and cash in on the up-market dollar...talk about short-sighted and blinkered....we take ourselves and our good fortune for granted!!

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Many on here love to act like they know it all and demand we "value add"/organic all our milk.
WMP is "bad" apparently .
While there is merit in some value add there is a cost associated with this.
Namely a certain date in Late oct/ earlynov when we hit peak milk.
Even with is new powder plants Fonterra is now only just managing to cope..
The past couple of years they have got through by the skin of their teeth.One breakdown and farmers would be dumping milk.
Milk is a perishable product and has an awkward supply curve.
WMP is the onlyway to cope in the paek as it drinks milk fast.
Fonterra do value add in the shoulder of the season so that is why some powder units are idle currently.
Like CO said a few weeks ago the Dairy restructuring act put Fontera in this position as it had to take all the milk supplied (unlike its competitors).
Flood the world with organics and watch the price drop.
Also if the world falls into another recession what do you think the first luxuries cut from household budgets?
The sky for organics is not the limit..

Spot on Don

Don M - I think you are completely missing the point here.......US dairying cops much flak about its farming systems and that information is online everywhere......and many of the public actually think that those same practices in the US occur here in NZ.....NZ dairy has an opening to differentiate its products in the market.....organic grass fed is what consumers are wanting and it is hard to flood the world market with this type of product......you can still have organic WMP !.......People are demanding GE Free, antibiotic free, hormone free, naturally grazed, no heavy metal contaminants, pasturised not homogenised, pesticide free etc.......cows grazed on grass in open spaces with eyes rolling in lush pasture is not seen as a value added product by these people but rather the products are as close to what nature intended so pared back rather than value added......stripping out the modern day additives.

NZ does differentiate itself in the world market.Fontera does produce speciality powders for niche markets.
These markets take time to develop and have limits.
Previous posters want us to value add everything.
we don't have the capacity to do that.
If you want to take a photo of cows rolling in lush pasture then I,m not sure an organic farm would be your first port of call

And what I am saying Don M is STOP trying to develop and market a product of your making and make your product to fit an existing and growing market !!

many markets are closed off to us..we need a free trade agreement to get in..
many on this site don't want us to have one though...sigh

I agree we need to get better access.......it is a pity that there is so much misinformation and fear around........It will be interesting to see how the rebranding of NZ goes.

Don you made a very good point on the challenge of our seasonal milk supply, but I tend to agree with workingman and notaneconomist, in that adding value is not about creating and processing new products, rather giving the consumer what they want, in this case nutritionally superior WMP derived from cows fed pasture.
If TPP is anything to go by so called Free Trade Agreements (is there any such thing?) don't result in market access. We need our political leaders and, Fonterra governance and executives to do more to help sort that out.

The real question Omnologo is - what do the consumers really want? My guess is that there will be many varying answers depending where on life's ladder people are. Those that can afford to pay more, will pay for Lewis Rd Organic milk at $4.07/l at Countdown and those that can't will buy standard Homebrand $1.58/l.
Fonterra Organic milk is still only $2.79/l at Countdown. Would be interesting to know if it is growing it's market share, or if the main organic market, are the people who buy in to the brand, e.g. Lewis Rd and are happy to be paying more for it.

I have given up on been surprised by the number of people on this site that think that Fonterra only do WMP and that somehow it is inferior and that grass fed isn't even part of their marketing. Have you seen this - yes, it is a Fonterra brand. ;-)
http://www.piakoyoghurt.co.nz/about-us/

CO, as an avid "organic" customer I can tell you one single important reason for me to spend a disproportionate amount on high quality food we buy in our family. I want to support those suppliers who take the risk and hard yakka to give consumers a safe and great tasting product. I buy "organic" mostly because that's the only product I feel I can trust when it comes to additives, hidden GE contents, clear and honest labelling... You would think that with that many people paid the ridiculous amounts of money at Fonterra, they have a few with some say that can work out what the future might look like in 20-30 years if Monsanto and cohorts had their way!

Good point CO. However it'd be good to see some effort to acknowledge the difference and superiority of NZ derived milk. The corollary being a return to pasture based systems.

Statement heard the other day:-
In cafes in New York, customers willingly pay double for a café latte made with grass-fed milk
I believed it - reliable source

People increasingly want to know what they are putting in their mouth
Had a look at that Piako Link
Looked at 2 pages
Couldn't find any reference to grass-fed source

The problems Fonterra need to address are

Differentiation of the sources of its products

(a) Grass-Fed (certified) organic
(b) Grass-Fed in-organic - un-certified

or

(c) Non-grass
(d) Modified or adjusted or additives

Now, that's a huge logistics problem right there
How would you address those issues?
When I go to the supermarket I can't find that info

so we need to change the ACT, once they go below 80% that fonterra has control over then they can start to act like a normal business.
the trouble with that it is not in goodman fielders interests or others to set up there own collection network, processing etc
http://www.legislation.govt.nz/act/public/2001/0051/latest/DLM109559.html

I agree, it is more a case of having a lot less cows, probably about 1.5million less and having a greater portion of them go organic...but not all - organic is not for everyone, it's hard, and we still lack a lot of cropping infrastructure and growers to support organic dairying..ask any organic farmer who has tried to farm through the last couple of droughts and has been unable to source off farm organically grown supplement...near impossible.

"Also if the world falls into another recession what do you think the first luxuries cut from household budgets?" so you are saying that produce from Fonterra is a luxury product? I would suggest that a more viable strategy would be for Fonterra to price it as a staple, as it used to be. The fact that one of NZs largest exports is essentially unaffordable for a large number of the lower and middle classes is a deplorable situation. I Fonterra cut the price in half in NZ, they'd probably treble the retail sales. Problem - the super markets will need to play the game too)

if?

Otherwise I agree, but in its pricing itself out of the market that might actually improve ppls health.

I bought a new block of colby on the weekend, the price seems to have jumped from under $8 a kilo last time to $9.40. Yet I recall a comment that NZers had to "pay International prices as that was market forces", so suck it up me the consumer. Now with milk 1/3rd? down but our wallets are still being pillaged, yeah great, not.

Murray86 I,m saying organic milk powder @$14000/ton is a luxury ..yes
Milk at just over $3/2l is pretty cheap.
why don't you start a petition against all the soy milk companies to get them to drop their price too?
after all the "do gooders " tell us soy is better for us..
as me mate Mick Dundee said.."you can live on it but it tastes like shit"
according to you the nz public are saying to farmers..
we want you to clean up the rivers /fund a bunch of pencil pushers to oversee this as well as H&S and a plethora of other compliance costs...then sell more of it below the cost of production so middle/lower income families can drink more of it??

Soy is loaded with estrogen so do-gooders giving bad advice......soy was only ever meant to be consumed once it was fermented as it alters the product to make it digestible for humans.............most soy is also GE......

Socialism destructs individualism hence all the flippin compliance......I haven't found any NZ'ers other than Steven and his supporters who demand all this regulation and compliance.....I think the spotlight is facing the wrong direction......

...notaneconomist picture Madonna drinking her soy latte on the West Coast...

Laden with phyto-estrogens, probably GE grown and, don't forget, sprayed with RoundUp just prior to harvest.
Fonterra could use that picture quite helpfully!

Except Madonna can no doubt afford organic!

It is when you are lying down on the grass!!

Yep, and just to single out organics, it's bloody hard to do. It requires years of experience, organics makes normal farming look like paint by numbers. If it were easy, everyone would do it. If everyone could do it, there would be no premium for it, and so it goes.

Organic WMP sells for $14,000 per tonne, 5 times more than ordinary milk powder.

In what quantities?

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Not true..people are thinking outside the square but get knocked as being economicaly illiterate. The business brains of key and Joyce and co are so superior....not. Here is the Greens in 2000...

The Green party has proposed a solution to Prime Minister Helen Clark's call for New Zealand to find a niche market in the global economy - organic farming.

Green co-leader Rod Donald said New Zealand had to give its clean, green image substance.

"We have this brand, 100 per cent pure New Zealand, and the way to turn that into dollars is to go organic."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=139321

Building more roads, converting more land and importing more people from corrupt cultures is all this lot can come up with.

you have a "typo" there.
the words "greens" & "economically illiterate" ...have to ALWAYS be in the same sentence..

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Uh no, considering how "economically illiterate" the right wingers are in here its at best the kettle calling the pot black.

Don M ....you're obviously a farmer/ex-farmer whose mindset is in a square paddock designed to produce the same old same old....any thought of creating something new or having a co-existing dairy industry alternative just raises your bristles...doesn't it.
It matters not that it was the Greens who proposed the idea back in 2000..it could have been anyone....but you like so many others simply fail to see a good idea and the possibilities that stem from it....come what may all good ideas just have to have their detractors....until they see their peers come onboard!!
EXAMPLE: Manuka!!...the bain of all farmers!!....Cut down by the acre and burnt as worthless scrub to create pasture for sheep...then dairy cows....AND NOW REPLANTED by the same farmers...because the stuff is made into liquid gold by bees....rather organic that....don't you think!!?

Comvita is selling one kilogram of manuka honey for $695.48

http://www.aucklandairport.co.nz/ShopandEat/Brands/Comvita.aspx?gclid=Cj...

Not organic. Varroa saw to that. Naive alright.

Nonsense Belle you are adding to all the misinformation that is already out there....you can still be Biogro certified - perhaps read module 7 page 11 on the Biogro certification for honey producers.

Module 7 Honey and Bee Products Production ... - BioGro
www.biogro.co.nz/import/default/files/module-7.pdf
May 4, 2009 - a. producers of organic honey and bee products certified by BioGro; and ..... The following substances are permitted for control of Varroa ...

As in a lot of these things they often dont work as well. Yes there are Biogro certified products to use. Do they work as well. There is a lot of debate on this. And also debate on whether one can really consider them organic. The whole premise of turning NZ into a forest of Manuka and making a fortune out of the honey is once again completely flawed. Who would pay the premium for it when it is so plentiful.

yeah I wouldn't be betting the ranch on manuka.

https://beehappyplants.co.uk/bee-plants/leptospermum-scoparium/

And if you talk to any honest beekeeper you can take a bee to manuka but you cant make it drink. Or pollinate. Or whatever it does. My beekeepet tells me they often prefer other flowers

That all depends, manuka only flowers 2-6 weeks, and sometimes in places there is nothing else flowering. It's all lab tested anyway.

EN...re read my comments.I have no problem with creating new products.I just pointed out that as a country we couldn't go completely organic.(to do so would be economic suicide.)
I find it ironic that you hold the greens up as innovators/full of good ideas /possibilities.
My experience is that the greens are "anti" everything going.
They only innovate if it involves the use of other peoples money..

Don M ....read my post carefully ...it wasn't a political statement, though yours is....and in most cases all systems are using somebody else's money!
My emphasis if you note is on co-existing produce....who's talking about complete replacement!?...that's like saying we must go completely solar or everyone must drive a hydrogen powered car!
If we work at co-existing models of living, the markets via consumer demand and technological advancement will determine the course and direction we will ultimately take. Diversity is everyone's friend.

Sure we have the land of milk and honey. Both used to bee expensive, milk is cheap, but honey is still expensive for now.

And rather than walking the organic farms talk the greens went out and "invested" in Windflow Technology. The superior business brains of the greens.

To be honest Rastus most of the Greens actually don't have a clue about organics, farming, clean and green etc.......Sue Kedgley pushed hard to get safe food production and had very good knowledge of the crap entering the food chain at various stages..........most of the time the Greens were actually damaging the NZ farm image to the world and many of them didn't understand the differences between foreign food growing methods and NZ food growing methods.......the Greens in promoting their version of clean and green have tried to stifle production of any kind.......

..yes you are possibly correct. Maybe strictly organic is perhaps not so important. Rather, the direction of producing a product that is seen as being as 'pure' as practically possible...as apposed to the immitation of the US/Euro montano soaked style famring.

The Greens are closer to the mark with organics than the programmed path chosen by our business elites that is for sure. Calling out the greens on their view of economics by such baffoons is laughable in the cirumstances. Now we also have their Sth Island irrigation mountain of debt disaster waiting for tax payer bailouts...add in Landcorp and weep.....

If 'pure' as practically possible was the number one consumer desire then feral goats, possums, kangaroo etc. would be top of the shopping list. "Cheapest" is still number one for the vast majority of people - thus you get 20% water in supermarket bacon that out sells quality smoked bacon 10:1.

Sue is missed. I am always examining small print looking for country of origin. Wasted effort.

Organics is one step that should have been taken long ago....it has been a few vocal people who clearly lacked any knowledge on organic farming and markets that has held the country to ransom.....the thing is you can actually go beyond organics with farming methods and start guaranteeing what natural nutrient levels are in the food........none of this synthetic additive nonsense that is not what people want......Directors and Executives should be falling on their swords for their piss poor performance that has lacked any long-term vision.....people wanting safe food is the fastest growing market in the world.....there are literally thousands of websites dedicated to safe food, organics and informing people how their food is grown and processed......people are desperate for organics and already have proven that they will make other spending constraints to afford as much organic food as possible......Maybe it takes an industry to come to its knees before change will be initiated..

There was a big organic dairy south of Auks. It needed another farm nearby to pawn the crookies off to. No antibiotics is tough going when you are talking high producing dairy animals. Not to mention cruel. Mastitis is god awful. No amount of homeopathic crap fixes a good dose of mastitis. Easy for a bloke to dimiss lightly. Perhaps a good dose of inflamed balls would bring reality to play.

The trouble Belle is that there are bad operators in every area and organics is no exception.

In fact a bad organic farming operation is actually the worse type of farming. There are other remedies besides homeopathics and equally as efficient as antibiotics and sometimes more than one remedy....you have to be more hands on with animal health as there is no one size fits all......you have to address the underlying factors and if there aren't adequate nutrient levels in the pastures being consume then of course animal health is going to be an on-going issue for any type of farming......

I can tell you right now that consumers are getting better informed and farmers can choose to ignore that or listen to them.....the Japanese have been writing beef contracts that have clauses stating suppliers must guarantee their products to be carcinogenic free.......inside those contracts are numerous animal welfare conditions that must be met as well and on farm inspections......think about it carcinogenic free food.......these contracts are not for organic food supplies....these contracts are about potential law suits......so you tell me how conventional farmers can avoid law suits down the track......they can't.....by the way potassium iodide is a most useful product.

The japanese are concerned that overseas suppliers will send them carcinogenic meat. Well that is the funniest thing I have heard in while. Those fukued japs are hilarious. Shame they cant keep their fukued country to themselves. It drains into our pacific. Moohaha.....

These contracts have been around long before Fukushima......and I guess that the people of Japan are just like the people of any other country they have no control of their politicians or bureaucrats and their fukued up decisions......at the end of the day a government doesn't define the people.

I dont agree. A large percentage of Japanese refuse to acknowledge what has happened to their country. So on goes the green light to nuke power again. A country rocked again and again by nature. Have we let it happen to us. No. Theres the difference.

I don't think we are any better than the Japanese......we are still buying their cars and TVs etc.........so we are letting them export their crap fallout with the trade winds are we not?

"So what we really want to know is whether 20 trillion becquerels of radiation is actually an important number. To which the answer is no, it isn’t. This is actually around and about (perhaps a little over) the amount of radiation the plant was allowed to dump into the environment before the disaster."

http://www.forbes.com/sites/timworstall/2013/08/10/the-fukushima-radiati...

Good luck with the plutonium bucky balls. Tim ignored the real bad stuff. Dont worry though profile, what you cant see doesnt exist eh

notaneconomist, Fonterra has a terms and condition of supply manual from Nestle that sets out environmental and animal health etc terms, for years. Nestle even go on to NZ farms - randomly choosing them every year. So for ingredients the buyer is stipulating what they want. That is why Fonterra has had to bring in some terms/conditions that some shareholders aren't happy with - but the clients have demanded them.

I am aware of an large organic farmer that also runs a non organic herd. That way if one of his 'organic' cows requires a non-organic treatment, he isn't losing money buy having to chop her head off.

That is why a burger at McDonalds costs $8 and a meal at a 4 star French restaurant costs $300. Two different mind sets, two different sets of skills. You usually pay much more for quality and expertise.

Yet they are both a waste of money.

Organic farmers need to breed their cows carefully Belle, and way before they become organic.

They can successfully breed cows with very low cell counts, good fertility, excellent healthy udders, facial eczema tolerance and good health traits which will enable them to withstand the health challenges they will encounter. The BW may well be out the back door, but a live cow is always worth more than a dead one!

Of course you won't find LIC trumpeting cows like this. They prefer you to breed cows which don't last TOO long , so they can sell more semen. So the top cows always seem to have a major fault somewhere in their profile...bad cell counts, bad fertility, unsound udders or poor residual survival which is of course "other" health traits.
They didn't get good paying jobs by accident...

"people wanting safe food is the fastest growing market in the world." I agree, I don't think ppl especially want organic food, what they want is not to be slowly poisoned, made unwell for unknown reasons or risk such. Nor watch the planet around them slowly poisoned. NZ's rep is for being 'green" ie grass fed output but in reality just how much of this image is left standing?

"Maybe it takes an industry to come to its knees before change will be initiated.." rinse and repeat I suspect. It strikes me that [some] farmers are it seems hell bent on making a profit no matter the long term damage to their land or NZ's image. Not that I see profit as bad, its necessary but done in a long term "sustainable" manner and not in a "lets get rich quick" manner.

I agree Steven. We just want safe food. NZ farmers are pretty good at doing that. It doesnt have to be 'organic'. Whatever that means. As a whole NZ farming has tipped in the wrong direction. I now see how government encouraged this. Key and crew bet the farm. Helen and crew initiated it. It was Helens bunch that okayed Wairakei Pastoral. I hope Mr Key goes next term. I like the chap, but I take note of what John Oliver said about him. He is too eager to please. The cage fiasco and the peeing in the shower kinda demonstrated this part of his character. So behind closed doors with the chinese or whoever, does he roll over? I believe he has and he does. Shame cause I dont know where we go to from here. Perhaps his use of the standard ' Farmers are resilient' was the last straw. I have chatted with a few dairy owners recently and they all remark how buggered their mates are. Quite a few lke the ones I know have options. Many dont. And noone is discussing the folly of paying over $4/kg for a beef weaner. Why. Desperation to put something on a farm that is bereft of dairy grazers now.

You do know that all agri-chemicals are licensed by your beloved bureaucrats don't you.....slow poisoning care of the State.....

Many forget that if we were to produce the volume of organics that we do WMP today - they would become a commodity and the price would fall and we would be exactly back where we started.

Organics can only ever be marginal production if you want to retain the price premium.

The price of entry to organic production can be easily achieved by anyone in the game and therefore basic economic theory will say it's very very difficult to extract a premium over time as any price rises simply attract new entrants with higher volumes and therefore lower prices.

Fonterra need to switch to grass fed, ban palm kernal and grain feeding not only to help their shareholders avoid losing even more money by feeding such expensive feed for nil return and creating more valueless milk.

Why not drop it and become Grass Fed as a company point of difference, who else in the world can do that?

I would love to see a premium paid for grass fed milk. If Fonterra can separate organic milk it should be able to do the same with grass fed and pay a premium. It doesn't have to be a solely grass fed company. Nothing wrong with diversity.

The Irish (Kerry Gold) use grass fed as their point of difference.

don't Fonterra own RD1 which is 50% owner of INTERNATIONAL NUTRITIONALS LIMITED who bring in the palm kernel meal.
http://www.greenpeace.org/new-zealand/PageFiles/111846/fonterra-connecti...

Government bailout on their, is it $8 billion debts, anyone? It's probably only $7 billion so no problem.

Just around the corner I suspect, well maybe 2 years off. The Govn of the day will be forced to step in and save Fonterra "to stop a severe economic recession" caused by farmers greed and stupidity but blamed on "other things".

The govt will not bail Fonterra out, steven - but they see it broken up and sold off.

I can't decide which is more fitting - "The more things change the more they stay the same" or " be careful what you wish for, you might just get it".

Previous to making a change 10 years ago to being a sheep & Beef farmer, I use to be a gumboot ballerina.

What I have seen is a concept that $6kg/ms plus was the "new normal" and that the banks will keep throwing money at the industry, even getting to the point of actively creating syndicates. Dairy farmers collectively had an air of invincibility, even arrogance.

Now we realise , or about to realise, that milk returns have always been connected to US grain prices, European farmers are hard wired like us and increase production when they can in an attempt to make more money, and that banks have no soul.

Now that Europeans can increase production, and that bio fuels are not an option for grain in the US, long term returns for all main commodities will slip back to the levels of 10 years ago. The only thing that changed since then is the debt levels incurred as money availability has always been the main driver for the price of land.While this is not a serious problem for farms that have low cost bases of say $3-$3.50kgMS, it its a concern where $4.50/kgMS is needed to cover the cost of wintering, irrigation etc. And as the banks have no soul, they have to engineer the exit strategy that best suits them, in the cases where losses can't be capitalised any further.

As for foreigner buying such farms, while I used to hate the concept, perhaps it may be an option to assist regional economies, as they will have to spend money on infrastructure to get OIO to get approval. And they get to finance the losses. You can always hit them with reintroducing the Land Tax that was removed in 1950.

The one new thing I have learned is the German word "schadenfruede". It reflects how a lot of people in my area feel towards dairy farmers, after the actions of a few have tarnished the reputation of the many.

As for Organics etc, demand tends to be both niche and unelastic, which means a large scale change would sink the premiums they enjoy. And if farmers change simply for higher returns, inevitable breaches of rules would tarnish the efforts of existing organic farmers.

As I tell my neighbouring dairy farmers, who would have thought that lamb, beef and wool returns are all higher than milk. Once mutton hits $4/kg, it will be a clean sweep!!

I thought mutton right now is $2.50.....:-/

So who in here has run an organic farm? Profitably? Or not? Anybody? Yes we need to use the grassfed meat and dairy story. But what is meant by organic? We have new age and old time problems on our farms that we dont have easy answers to if you take away the current solutions. A bit of Black leg anybody? Tetanus? Pulpy kidney? Or some BVD? Theleria along with your ticks? So what do you people mean by organic eh? No vaxes? Good luck with that. Fertiliser....where will all the fert come from that is needed if you biff rock phosphate out. Do we just pull more fish out of the sea to gut and ferment? So what do we give up to be organic? What 2016 farm methods would you see as organic and which would you biff out?

talked to a farm manager who moved down off an organic S&B farm up in Gisborne.
The first thing he noticed was how nice the "homekill " tasted from the non organic farm he now runs..

Its amazing what a drench can do for a lamb

Sea weed is a pretty good fertilizer. It washes up on our beaches for free. No farm in NZ is far from a beach. It is free, organic and close by. a nobrainer

sorry cant do that...if there's money to be made the seaweed would be classified as "Taonga".
It would also upset the local "ecosystem" and deprived the organisms that consume it..
..or do organics bypass the RMA/SAFE/council /IWI concerns??

Jeez Social....yes I can see it now. I cant even be bothered with a decent response. No brainer is correct. None whatsoever. Do the math

When you say its free, what do you mean? Taking seaweed out from the bottom of the ocean food chain will have knock on effects. I think what you are suggesting is that it's a (relatively) unexploited resource

Where to start....

fish - global fish stocks have halved since the 1970s, so that idea wont last that long.
fertilizer - oil/N.gas based, so that idea wont last that long.

"So what do we give up to be organic?" I prefer to think of the Q as "So what do we give up to eat?" So at the moment i dont think ppl are thinking in these terms about our ongoing problems. The Q is how long can we continue not thinking about such changes and what happens when we do.

Phosphate and cadmium, good times ahead.

Ok,
So lets restructure and make fonterra the exclusive New Zealand supplier of commodity milk products.
Their role is to get their production and sales costs minimised, buffet will be pleased.
All added value products are produced by manufacturers who will hopefully pay a premium for the milk.
Yes?

Oh dear. Kiss of death. Theo is quoted on stuff
Lets be clear here...Fonterra is sound, very sound
Something like that

Here is a question for you Belle, how many cows do you have to milk to make Theo's 5 mill Salary?

None. Cause they arent covering cost. You just gotta go to the market and borrow to pay his wages.

I gather it was a trick question Aj ;-)

The correct answer was all of them. I hope they don't hammer the little guys and let the big guy's socialise their losses.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1151...

I hear the banks are now officially worried, worried about the price of milk, worried about Fonterra and worried about their exposure.

I'm worried about the banks and the nation's exposure to them. How did they not see this coming? Hoping for utopia one can laugh off, but funding it and hoping for another outcome is madness.

I guess this is in line with BH's inter-generational battle writings. The staff high up enough in the banking hierarchy to pull the levers are quite happy to play the short game given their age and impending exit with their (ill)gotten gains. Leave it to the slightly younger generation to deal with the fall out. The soon to retire ones have done the damage and ready to fly...It's never ending. Until it ends.

The pension industry has ended. Relying on the stock market to fund a pension in a close to ZIRP/NIRP financial environment is a fools game with no means to pull future losses never mind profits forward by discounting them to a lower present value. An actuarial nightmare.

Fonterra spokesman on zb news this morning should be sacked for saying fonterra is performing very well and expanding, how insulting and rude to its shareholders

Fonterra issuing bonds is a classic sign AJ, all companies in need of capital issue some sort of (capital raising venture) like bonds etc, always at the worst times.
Always at a higher interest rate as more risky. A corporate Band-Aid over truth. AND then the credit rating agencies give them a High rating!!

'Officially' what does that mean Aj. Imodeen prescribed for all :-)

It means it's the banks problem,the boy's over in Aussie went through the loan book and spat their lattes across the room, " Crikey mate, looks worse than the Sydney housing market". Which they were already taking Imodeen for.

It really means then its the depositors or tax payers problem.

I wonder how banks shares will do...

Have you been locked in a cupboard? ANZ share price

um why is it down to the EU? "The time frame for a rebalancing has moved out and largely depends on production reducing – particularly in Europe - in response to these unsustainably low global dairy prices."

ie how much Govn support does a EU farmer get v NZ? so who is going to blink first? NZ banks or EU banks?

Dont you mean Oz banks

Volume value velocity. Fail fail fail. Too much. Too little. Too late.

Not according to the Fonterra spokesman on zb news update this morning he said Fonterra was performing very well and expanding......... sounded like they can't get enough milk?

Perhaps building dairy farms in Indonesia is the answer. Tones of iron ore expansion mindset.

"New Zealand dairy giant Fonterra plans to invest more in Indonesia on the back of strong performance in the country, with constructing an on-farm dairy processing site among the company’s possible investment options."

http://www.thejakartapost.com/news/2016/03/04/fonterra-seeks-market-expa...

so expand in Indonesia thus reducing demand of WMP from its NZ farmer owners.
interesting how much control the NZ farmer owners have, unlike being a company shareholder who have the option of selling and moving the investment to a better performing company there options are very limited.
Does putting all the eggs in one basket and forming Fonterra now look like a mistake

Has similarities with the Auckland super city

Who was the Fonterra spokeman who was talking up Fonterra on the news this morning? He said they were performing very well and expanding at a great success. How rude is that ? whoever that guy was should be sacked for making such comments

He must be referring to the next new loss making China Farming Hub just restarted contray to CEO comments at AGM "that expenditure is on hold "

All the beautiful, rearward looking wisdom you read here, will soon be applied to the Auckland housing market.

Fonterra needs to stop hurting people and communities by false hope, just be honest about the situation and stop trying to sugar coat it all the time

The sceptic in me thinks that it wasn't coincidence that the good news/false hope was all delivered PRIOR to the Fonterra elections. As said in "the Incredibles" - "Coincidence...I think not". It's either that or the team in charge of market intellegence needs firing.

Gee I wonder who was looking for re-election?

That wont be happening I'm afraid. Management, in the same fashion as politicians, are paid well to 'manage' situations. They are always smiling, always saying the word 'confident' and trying to laugh away anyone else's concerns. Next time you listen to an interview with Nathan Guy or Michael Woodhouse pay attention and you will notice the word confident is usually out there in the very first sentence. Its simply all acting.

Someone commented earlier about Shadenfruede, where pleasure is derived from another's misfortune. In this particular case, the misfortune of dairy farmers. Unfortunately, right now, I understand this feeling because I'm experiencing it myself.
The excess spending from dairy farmers in my local area in recent years has been nothing less than obscene. And that's just the honest truth. Many of them in this area are very established families going back several generations - so why the crying now. New Hiluxs every 2 years is common, and the wives love there matching Hiluxs but with low profile tyre's. Whether they think that's sporty or maybe its their own idea of stylish, I don't know., but there is certainly a trend.
I am not in farming, however I am in a business that also has been doing very well the last few years. My company either saved the profit over 3 good years or invested it wisely. This of course meant we had to pay tax. We did not take on extra borrowing because we knew as with everything, the good years would not last forever. I had several of my farming friend's and neighbour's sit at my table and tell me I didn't know what I was doing, and ask me "what are you so scared of, get into it boy borrow-up". They actually said that. They told me I obviously didn't understand because "debt is an asset now". One said "you're mad paying tax, change your accountant...haha we don't pay tax, we're farmers."
Now things have changed for the worse, they are all running around squealing like they've had hot water poured on them. I've said to a few that perhaps they should've put some money away for the bad times, but once again they tell me 'you obviously dont understand'. It seems to be their default answer for any contrary view.

But I'll tell you one thing I do understand. As a direct result of my financial prudence over the last few years I'm cashed right up, and as these guys start going to the wall I'll be there to back the truck right up at 25 or 30 cents in the dollar for a couple of farms.

Wolf, I would still avoid dairy farming outside the very traditional areas. Costs are crippling once profitable farming systems. Fertiliser is expensive and extensive farms are being crabbed by foreigners.
I think we are going into a period of great change, globalisation will get interesting, along with Brazils/ Russia's potential to export.
https://www.youtube.com/watch?v=_1lm0g0Tt4k

The government 's farming dream is over. Cushy compliance jobs for all. Big foreign corporate farms with plenty of pollution creating massive compliance costs. Globalisation is failing big time. what a huge misallocation of resources the dairy industry has become.

The corporates are buying up all the family vineyards in HB, Villa grabbed 5 or so last winter. They are now big enough to drive down returns to growers and snap up the bargains.

Isn't it a case of the banks indebting the corporates, and furthermore denying a risk adjusted return to the created deposits, which in most cases are domestic claims? This constitutes a continuing transfer of wealth to the bank owners with little interest earning wealth retained in the domestic communities. Putting an end to industrial scale wealth redistribution to a foreign elite is an epic battle that demands citizen attention immediately.

Yes so true and how many of those farmers and their wives actually milk the cows? very few if you go down Canterbury ways mostly ex cropping farmers who don't like cows and treat workers like slave robots, max bang for buck McDonalds philosophy

As I have said in the past the farmers were not the sharpest knives in the drawer at school and generally left as soon as they could

You don't have to be stupid to be greedy.

What an arrogant comment gordon.

How sharp is the governemnt?