The dairy boom has had something of a dream run with commodity prices still flying high – Leitissimo, a Kiwi-owned, Brazil-based dairy company is proof of that. And according to Willy Leferink, we can all have a piece of the action.
For those who wish to ‘save our farms’ from foreign hands, I’m an immigrant. For others who view the cow as an environmental devil, I am a dairy farmer. To those who accuse corporate farmers of avarice, my family and I have interests in six farms. I just hope they’ll note ‘family’ in the last sentence. To those who accuse dairy farmers of tax evasion, I pay my taxes and employ people who do the same.
While I could recite economic numbers showing over a quarter of all exports are dairy, this tends to fly over the heads of many. Listening to the Herald’s Fran O’Sullivan on the radio recently, I was struck by her saying "people want a slice of the dairy action". This was about ‘mum and dad’ investors getting their share in our biggest export industry. The argument is attractive, if somewhat idealised. There’s an assumption retail investors will collect dividends rather than selling their shares at the best possible price. This confounds my idea of what capitalism is.
From Europe to the United States to right down here in New Zealand, the dominant model for agricultural ownership is something called a cooperative. We’re not alone either; the three Foodstuffs combined would easily be New Zealand’s number two company. We believe in the collective ownership of processing and marketing because it gives farmers control. It means farmers are not another input to be squeezed like a lemon.
Let’s assume, hypothetically, that Fonterra’s farmer-shareholders decided to ‘stag’ Fonterra. Given this motivation is driven by maximum return, would farmers seriously consider an initial public offering here? With all due respect to the NZX, it is a small financial fish whereas Fonterra swims in a much larger sea. Put another way, Fonterra would comfortably sit within the top half of the USA’s Fortune 500. So you need to ask where the greater listing premium would come from; the NZX or say, the Hong Kong Stock Exchange? For political reasons it would be a dual listing – but the main investment action wouldn’t be here.
It doesn’t take a fortune teller to see the future. Surging milk production from Asia with most investors based there would pull operations, ideas and people from New Zealand. It’s a well-trod path with Nufarm and Lion Nathan. Most recently, Independent Liquor and Charles have joined 42 Below in foreign ownership. Perhaps Exhibit A is GlaxoSmithKlein; the Glaxo starting in Bunnythorpe.
The big growth in the world’s liquid milk supply will come from
Argentina, Brazil, India and China. Fonterra already has beachheads in
place or in the pipeline with three of them. What’s more, Fonterra’s
dependence upon New Zealand’s liquid milk reduces each year and is
currently below two-thirds.
Federated Farmers will lobby for whatever our members want and currently, they overwhelmingly back cooperative ownership. It’s to the credit of Kiwi farmers that they’ve seen through the temptation of a quick buck. Then again, they only have to look across the Tasman to see what a non-cooperative future would be like. In Australia, Japanese and Italian companies dominate fresh milk processing and farmers aren’t happy with their lot. I would wager Fonterra’s incoming chief executive, Theo Spierings, understands cooperative benefits. It's little known here but the Friesland in what is now RoyalFrieslandCampina started down the demutualisation road before it reversed course. Why? It was the growing dominance of non-farming ‘dry’ shareholders over those actively farming as ‘wet’ shareholders. My extended family in Holland were part of this counter revolution; all that is listed is not gold.
My vision for a globalised Fonterra isn’t much different from what you’ll hear from those who back a listing. The exception in my vision is that Fonterra’s head office is still in New Zealand, it’s still owned by dairy farmers and these farmers still get up at 4am to milk. Having skin in the game keeps you grounded and farmer ownership has aided rather than impeded innovation. Look at the way Federated Farmers pushed for Fonterra to retain more in order to grow and how these retentions helped Fonterra develop a joint venture with another dairy cooperative to get into pharmaceutical grade lactose and non-lactose-excipients.
In the next four decades I believe Fonterra has the ability to triple its $16 billion turnover. The global population trend is our friend, as are the assortment of free trade agreements formed or forming. These are not merely means to grow trade, but give New Zealanders access to tomorrow’s countries.
From the cynics, I can hear a lament of what this means for the environment. Environment Southland has gone as far to say the region cannot take one more cow but that has shades of US patent office commissioner Charles Duell's infamous utterance 113 years ago that “everything that can be invented has been invented”.
Contrary to popular perception, farms are heavily audited by councils and dairy companies for compliance. A prosecution under the Resource Management Act is no slap with a wet bus ticket because the RMA is a criminal prosecution. Another fact often overlooked is that farmers live where they farm. Farmers swim and fish just like every other Kiwi, so we have a stake in water quality, as do our stock who need plentiful access to good quality water. It’s in our interests not to abuse what we’ve got because farmers aren’t dumb.
From the perspective of someone not born here, New Zealanders have a tendency to catastrophise. This country is either the best at something or the worst, so Kiwis don’t do things by halves. When my extended family and friends come over for a visit, they see New Zealand for what it is and they like our natural environment, every bit as much as the farming environment. They’re not alone; Columbia and Yale Universities rank New Zealand number two in the world for water. It was discovered, only very recently, that one hectare of gorse leaches as much nitrogen as one hectare on an intensive dairy farm. If the link between livestock and water was as simple as fewer cattle improve water, then it hasn’t worked in Auckland. Cattle numbers there have fallen 18 percent since 1999 and it’s not a small number either; it translates into 69,000 fewer cattle today.
Most non-farmers are struck by the technology on offer when they go to a fielday. Farmers readily adopt technology when it aids farming and there’s a mass of it emerging with nitrification inhibitors, fertilisers, grasses and feed. Sophisticated sensors on my farms detect soil loading as dairy wash-down is recycled back to pasture as liquid fertiliser. Farmers don’t flush waste into rivers or streams as cartoons and politicians suggest. Instead, recycling waste saves an average dairy farm up to $20,000 each year in fertiliser. Since arriving in New Zealand as a farm worker, I’ve seen farm management practices like this leap ahead. You can’t judge a farm today from the viewpoint of the past.
As a farmer, I also directly contribute to research and development with every kilogram of milksolids I produce. There are few industries outside of farming who do this but it shows a willingness to seek a better way. Joseph Bazalgette built London’s sewers to remove the foul smells thought to carry typhoid. Only later did they discover typhus was waterborne – but the sewers had inadvertently created a solution. This happy accident is why we support investment in primary greenhouse gas research. These are all reasons why Sir Paul Callaghan sees dairy in terms of productivity per employee and in this respect, pastoral agriculture stands out.
This is perhaps the best answer to Fran O’Sullivan’s desire to see more people get a slice of dairy action; they already do. Dairy provides more jobs than each of the finance and accommodation sectors combined. When you consider half of what we earn as farmers is spent in our local communities, the Fonterra supplier sign outside my home farm really says it all: it starts right here.
Willy Leferink is the chairperson of Federated Farmers Dairy.