by Steffan Browning
I had the opportunity yesterday to speak about an issue quite dear to my heart. The government, supported by the Fonterra board, is pushing through changes to Fonterra. The Government changes focus around transparency in the process of how the milk price that farmers receive is set. More importantly, they are also allowing for fundamental changes in Fonterra’s capital structure.
Fonterra is a co-operative which means it is owned by the farmers that supply Fonterra. Co-operatives are great. They deliver good results to their members. In Fonterra’s case this is because the vast majority of milk in NZ is exported. This means Fonterra can’t set the price they sell at. The incentive is then to drive down the price of their raw materials – milk – if they wanted to increase their profits. Fonterra is a co-operative though, increasing their profits means returning more to the farmers that supply Fonterra. A co-operative means that farmers that supply the milk reap the rewards.
The proposed changes are the first step in breaking Fonterra’s co-operative structure. There are some complex financial reasons why the Fonterra board supports the changes. A vote of farmer shareholder/suppliers supported an initial proposal to address these issues. Since 2010 the proposal has changed significantly to be more like a previous model that was soundly rejected.
If the Fonterra Board and the Government has their way, Fonterra will be opened up to investment by non-farmers. This would incentivise Fonterra to drive down the farm gate price of milk. Dairy farmers would be left in a similar position to horticulture growers with increasing costs and decreasing returns which will lead to the squeezing out of family farmers.
We support Fonterra continuing to be a strong co-operative that delivers good returns for dairy farmers. We all know that there are major issues around the environmental impact of dairy farms. I hope that some of Eugenie’s suggestions around introducing the ability for environmental factors to be considered when setting raw milk prices and/or accepting milk supply will be explored further in select committee.
Published in Economy, Work, & Welfare by Steffan Browning on Wed, April 4th, 2012
Tags: agriculture, Co-operatives, Dairy Farmers, Fonterra, primary production
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on the trolls and those who are unable to keep on topic
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I have a question for you Steffan. Who set up Fonterra? Your piece indirectly suggests it’s a Govt set-up organisation.
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Fonterra was born out of several co-ops. Government created legislation to enforce some rules because it became a monopoly – Fonterra handles about 95% of all NZ milk.
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Wow Steffan, just one thing you forgot, ummmm let me think, what was it – Oh that’s right, the shopper, consumer, citizen, mum, dad, kids, young old, rich, poor in fact the population of New Zealand that actually pays money to purchase Fonterra’s products. Now lets reflect on the current situation. Basically the notion of the friendly easy going dairy farmer with the she’ll be right attitude is long gone to be replaced with a trader in commodities (through the Fonterra Co-op)with the same attitude and objectives as those on Wall St. Lets not fool ourselves, maximising return on investment is the name of the game, just read the Fonterra literature. The New Zealand consumer, whose taxes subsidized the industry to the hilt for decades during its establishment is now bottom of the heap and is expected to pay the same (if not more)for their milk as those in the wealthier nations around the globe. Now have a look around and see the benefits of trickle down, export $ and local employment that Fonterra harks on about to justify their actions. Hard to find, you bet-ya. Now take a look at the rate of nutrition related disease and issues of food security (access)in NZ and tell me what you find.
So Steffan, when it comes to shedding a tear for the poor old farmer I find it difficult to adopt you somewhat naive perspective. You seem to suggest that although farmers were happy to play the free market game at everyone’s expense within a monopoly (coop) but when the other commercial players operating under the same commercial agenda want a piece of the action they need protection from the big bad boggy man.
Who has asked New Zealand taxpayers and consumers for their thoughts on this issue – they have been milked for far too long.
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Hi Steffan, yeah i understand the coop model but i do agree somewhat with John Fonterra are playing the big boys game on a world stage. What i like better is local or regional based coops that give farmers a good return and because theyre direct to consumers they too get a good price. In other words the middle man is missed out. So go farmers markets and local coops. We have a milk vendor dairy farmer in GB and we get quality raw milk at $2 a litre on a self serve basis …now thats impressive all round!!!!!
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