Source: Radio New Zealand
Cows at a dairy farm in Waikato. RNZ / Sally Round
It is pay day for dairy giant Fonterra’s 8000 or so shareholding farmer-suppliers from the sale of the co-operative’s Mainland Group consumer business.
The proceeds from the dairy co-op’s multibillion-dollar sale of its Mainland consumer brands business were landing in most shareholders’ bank accounts this week.
The average payout would be about $400,000 from the $4.2 billion sale of the business behind well-known brands including Anchor butter, Kāpiti ice creams and Mainland cheese.
Tuesday marked the official payment date, after the sale was first proposed in August last year.
Gary Reymer has been a dairy farmer for nearly 50 years and farms near Cambridge. RNZ / Andrew McRae
Reducing debt a priority
Waikato farmer Gary Reymer, who had supplied milk to the co-op for nearly 50 years, ran around 500 cows on two farms near Cambridge.
He started with the co-op as a sharemilker in the late 1970s, originally to the New Zealand Dairy Group, before the merger with Kiwi Co-operative Dairies formed Fonterra.
Reymer said it would differ how farmers used their payment, as some were more comfortable into the long-term than others.
“Some will have drinks on them, some will take a bit of travel, some will go for debt reduction, and some will go for capital improvement,” he said.
“For ourselves, it’ll just be consolidating our position, nothing extravagant… debt reduction.”
Reymer was among the 98 percent of shareholders who supported the divestment of Mainland Group, and said it was smart to sell it because the brands were no longer adding value.
“Turning off the brands business was probably the final conclusion over many, many years, decades on the back of discussion,” he said.
“Everybody’s just come to the understanding that it was a really difficult nut to crack, and this is probably the best strategy.”
Reymer said not all was lost, as the deal enabled the co-op to continue supplying the ingredients for the new owner, Lactalis.
“I see it as very much a win-win and I think that’s where the majority of shareholders have got to.
“We’ve lived through farming long enough or farmed for long enough and there’s plenty of cycles, and you’ve got to make sure you bank the good times so you can move to the bad times.”
Fonterra’s Anchor brand butter, showing the label claiming it is ‘100 percent New Zealand grass-fed’. Supplied/ Greenpeace
Debt, farm equipment and family holiday
Meanwhile, for Waikato’s Wallis farming family, the mega-payment was going towards reducing debt, buying new farm equipment and a long-awaited family holiday.
Sixth-generation farmer Ross Wallis ran around 285 cows on 108 hectares with his wife and four kids near Raglan. Wallis joined the co-op in the year 2000 and said the consumer brands business had even been a “bone of contention” since back then.
“I think with consumer goods, it was kind of – you were pulled too many ways, and it was just evident that we’re really not a consumer business. We’re not good at it, for whatever reason that might be.
“But ingredients and business-to-business foodservice, I mean we’re exceptional at and we do really well. We’re probably world leaders in that space.”
In support of the deal, he said his payments were already accounted for.
“There’ll be a good chunk of it going into debt reduction, which is greatly needed. But also we’ve just purchased a tow and fert.”
He said the $34,000 investment into the 1000-litre piece of equipment would help reduce his fertiliser bill.
“With fertiliser prices skyrocketing, we just need to be more efficient at what we’re putting on, and so tow and fert allows you to put on less with more bang for your buck.”
Now only using locally sourced fertilisers, Wallis said the new equipment would allow for a more efficient use of spraying lime, small seeds and the seaweed-based fertilisers he used to improve soil biology.
“We’re [also] going to put a little bit towards an overseas holiday later in the year.”
Wallis said many farmers would likely invest in technology to drive on-farm efficiencies, as he had.
“I think we’ve got some exciting times ahead.”
Deferred maintenance, effluent system and succession
Jonn Dawson, a Morrinsville-based farm management consultant of almost 30 years, said many of his clients will be using the payout to pay down debt as their number one priority.
Dawson said others were also planning on reinvesting the money into their farm operations, with the cowshed especially the basis of all dairy farm operations.
“It’s never hard to spend money on a dairy farm,” Dawson said. “There are often deferred maintenance issues that need to be attacked, things like fencing and milking plant maintenance.”
He said compliance and projects like new buildings or machinery updates were other options.
“There are compliance issues, which you can throw a lot of money at, perhaps upgrades to effluent systems and environmental initiatives,” he said.
“The other thing is that there’s the opportunity for expanding the business, you know, more cows, upgrades to cow sheds.”
Dawson said the payout also represented a chance to consider succession planning, which a few of his clients were looking at.
He said the cash injection will be good for communities which supported dairy farmers, especially in regions like Waikato and Taranaki.
ASB chief economist Nick Tuffley did not expect any consumer spending binge, but obvious moves to pay down debt and do some maintenance and capital spending.
“This is a big one-off payment,” he said.
“It will take time for some of the spending impacts to flow through, but that is going to benefit rural communities. And also, we think it’ll put the dairy farming sector in a more resilient position.”
He said a theme coming through was that older farmers were looking to their departure from the industry.
“It will also set up some dairy farmers for their future as well, particularly if they’re looking at diversifying and putting that money to use in other ways that will help them at that time of life if they move off the farm.”
Meanwhile, the co-op’s president of global ingredients Richard Allen was announced on Monday as the new incoming chief executive, following the resignation of Miles Hurrell, announced last month.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
