By Bernard Hickey
Fonterra and its Chief Executive Theo Spierings came under sustained attack in Parliament today from the Opposition Labour Party, who questioned the dairy giant's forecasting abilities and its refusal to talk publicly about lengthening payment terms for contractors.
Labour Finance Spokesman Grant Robertson called on Prime Minister John Key in a Parliamentary question (see video above) to say whether farmers should be satisfied with the performance of Spierings.
"I don't have any responsibility for the performance of Theo Spierings, any more than he has responsibility for the performance of Andrew Little," Key said.
Robertson pressed Key again for a view on Spierings' and Fonterra's performance, given it had changed its payout forecast three times in seven weeks, had increased its debt gearing of 49% and was demanding 90 day terms from suppliers to improve its working capital position.
"It's not my responsibility for whether Theo Spierings is doing a good job or not," Key replied.
Earler Robertson asked why Key had commented in November 2014 that dairy prices would bottom out soon, given he had been told earlier that year that some (including Goldman Sachs) saw a five year milk glut. Key said in reply to Robertson: "How did the member get it so wrong when he thought he'd be the leader twice and lost."
Forced to answer the question again, Key said: "I remain of the view that the long term outlook and the medium term outlook for dairy is very strong, but it's always been possible not to count and get your numbers wrong from time to time."
"You've got a global opportunity out there emerging in Asia and the changing markets," Key said, adding Labour should support the dairy sector by supporting the Trans-Pacific Partnership and Resource Management Act reform.
However, Finance Minister Bill English said in answer to a later question that farmers should not rely on a rebound in prices for their survival.
"Farms with high levels of debt and high production costs will come under real pressure, whereas six months ago they may have thought they could hold on until prices bounced back up, that looks much less likely now," English said.
"So it's appropriate that the dairy industry is thinking about reducing production costs, adjusting to capital scarcity, rather than waiting for prices to rise," he said.
English denied an allegation from Green Co-Leader Metiria Turei that the Government had previously encouraged farmers to increase production and their debts.
Bill English was more cautious about outlook for prices and has previously warned that a return to the days of NZ$8/kg payouts was unlikely. He earlier told Morning Report that some farm values would have to be reset.
"This is an industry where they've had a focus on growing equity and growing land values for quite a long time now. It's going to be a significant adjustment to getting back to the core business of effective farming for cash flow," English said.
"They are going to see land values drop. That is pretty much certain," he said.
"Between the industry and the banks they'll be able to find their way through it," he said, adding he ruled out any Government loan guarantees or direct assistance, other than through rural support trusts.
'Minister wants Fonterra to deal fairly with suppliers'
Later, Small Business Minister Craig Foss said that although Fonterra may be meeting its legislative commitments, "it is my expectation that Fonterra and all New Zealand’s large businesses deal reasonably and fairly with New Zealand small businesses."
He repeated that Fonterra would be judged in the court of public opinion on its behaviour.
"I do note that companies in New Zealand—Kiwi businesses, large companies—I am sure, value their reputation as fair and reasonable Kiwi businesses. The court of public opinion will, I am sure, judge those businesses on their behaviour in the market," Foss said.
Earlier, Labour Primary Industries spokesman Damien O'Connor said it was time Fonterra spoke publicly about the slump in dairy prices and the worsening of its payment terms with suppliers.
'Fortress Fonterra' neglecting its duties'
The refusal of Fonterra to speak to media over the last two days about the slump in the milk price and overdue payment to contractors was outrageous, Labour’s Primary Industries spokesperson Damien O’Connor says. Fonterra has admitted itself in the past to being 'Fortress Fonterra' when dealing with public interest in its actions over a botulism scare. See our October 2013 article here.
“Whether you’re a farmer under financial pressure, a contractor concerned about payments or a local rural community leader or a diary consumer, decisions made by Fonterra have far reaching implications for us all," O'Connor said.
“Fonterra is spending millions of dollars on public relations and corporate communications but its refusal to respond to queries in the last two days is an absolute failure and dereliction of its basic industry responsibilities,” he said.