More back-to-basics WMP limits dairy auction results. And with no CGT, water or fertiliser taxes ahead, eyes are out for stealthier options that may resurface

More back-to-basics WMP limits dairy auction results. And with no CGT, water or fertiliser taxes ahead, eyes are out for stealthier options that may resurface

The latest Global dairy trade auction followed a very similar pattern to the previous action with overall trade slightly up with a +0.5% lift.

However, whole milk powder, the key product from Fonterra’s perspective down again with a -0.7% drop to US$3,269; that is still a reasonable margin over the US$3,000 which is generally considered the base to stay above.

Fonterra has increased its WMP offering by 4,000 tonnes over the next 12 months and this comes on top of a previous 4,000 tonne lift last month meaning the total offering for the next 12 month period is over 627,000 tonnes. The lift appears to be driven by a change in the balance of product coming out with less cheese hence more WMP. Fonterra may be using the opportunity presented by the lower production numbers from other producing countries to move some product and not risk pushing down prices (much).

The impact of DFA joining the GDT is not being seen as yet, another plus. The winner on the day appears to be butter up +3.5% to US$5,544 a 52% lift since the low on November 20th 2018. Apparently Chinese consumers have discovered hot cross buns and they go well with butter. An irony is Westland Milk rely heavily on the butter trade and future benefits now may not go back to co-op shareholders.

Fonterra’s share price while having a small rally going to $4.30 continues on its longer term trend downwards which began on December 2017. At that point it was sitting at $6.68.

CGT fallout

The decision of the Government not to pursue a Capital Gains Tax will come as a relief to most farmers. It may save a lot of extra work for farming families with their accountants and lawyers trying to work out what were going to be the most suitable option to bring the younger generation into farm ownership. But it is still a problematic area at least the current ‘rules’ are understood.

The decision not to follow the Tax Working Group's advice will have been purely politically pragmatic. Some commentators are still predicting a CGT by stealth with perhaps the time frames around the bright-line test (selling a property for gain within 5 years) being extended. It has already gone from two years to five last year.

Perhaps more of a surprise was the decision to can, for now, any notion of water or fertiliser taxes. With the CGT and these taxes behind us focus now is likely to turn back to the issues of Climate Change and this is where the big bucks may start to be discussed. The Green Party having lost one of their foundation ‘planks’ will be looking to get some points back on the board and while they publicly have been accepting of the CGT decision behind the scenes, they will not be happy.

Dairying has been getting some unwelcomed attention in the Capital with activists (a relatively small group) pouring milk onto Parliament's steps in a protest to try and raise water quality standards in New Zealand.

Dairy prices

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Fonterra share price

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3 Comments

Tucked away in the TWG Final Report are the following little gems/nuggets/time-bombs (choose noun according to yer own predilections...): my bolding of the more outré notions....

Longer-term possibilities – an extension of the tax base

129. Over the longer term, environmental taxes could play a significantly greater role in the tax system and become a much more significant tax base. Innovative new tools could broaden the scope of negative externalities that can be measured, valued and taxed.
130. Greater tax revenue could also come from an expanded use of taxes on renewable and nonrenewable resource use. A new approach to resource taxation, with a focus on intertemporal fairness, can ensure resources are used in a way that is fair to future generations of people and other species.
131. There are significant environmental challenges in New Zealand that are less well suited to environmental taxes. These tend to be environmental problems, where specific activities driving environmental change are more challenging to measure, such as biodiversity loss and impacts on ecosystem services.
132. The Group received several submissions highlighting new approaches that could be developed to address some of these challenges. An environmental footprint tax, for example, is a form of land tax set according to the intensity of land use and consequent impact on the environment. This has informed the Group’s thinking on a natural capital enhancement tax. Biodiversity tax credits should also be considered.

But as, elsewhere (e.g. Recommendation 75, see below) increased Transparency and Engagement is urged, I look forward with Interest to its application to 'other species'......

75. recommends the use of the following principles in public engagement on tax policy:
a) Good faith engagement by all participants.
b) Engagement with a wider range of stakeholders, particularly including greater engagement with Māori (guided by the Government’s emerging engagement model for Crown/Māori Relations).
c) Earlier and more frequent engagement.
d) The use of a greater variety of engagement methods.
e) Greater transparency and accountability on the part of the Government.

Ah, the old small print trick. Environmental taxes ay? This is right up their alley.

The CGT debate was simply a red herring to deflect debate over the fact that David Parker has failed to meet his deadlines for environmental policy.
*November was the month that Parker was to announce which catchments the govt was designating sensitive catchments. It is now almost the end of April and still no word.
*Parker was due to announce environmental policy/rules in April. This has not happened and word on the street is it will now be June/July - winter. A time when winter grazing regimes are happening. It also happens to be the time that again, word on the street says, a certain environmental lobby group will be starting an anti ag campaign that will be tying in with strict rules/policy Parker will be announcing. This is campaign is said to be to aid the govt to get public opinion on their side for their announcements. It will be interesting to watch both the said campaign and Parkers announcements.
*Watch also for the govt considering subsidies to farmers while they turn the NZ ag industry in to the same subsistence/only just surviving ag industry that exists in the northern hemisphere, where not insignificant portions of ag income/viability comes through subsidies.