Nilator McKenzie ruminates on crucial differences between supplier and shareholder, information flow and cashflow.
Dairy Farmers are essential – I have always known this and I am glad now more New Zealanders have become aware of it. This is great, we can get a free coffee at Robert Harris…. sorry, the deal has gone. Since we are essential we cannot get any Covid-19 subsidies, and if you did find a way be prepared to have to pay it back.
As it turns out, the last four months of last season sucked on most North Island farms – simply not enough moisture to grow our grass. For the month of May our wonderful neighbours provided the farm with water. Our dams were dry – even the back-up dams. We spent a lot of time transferring water from one dam to another water source.
Last year’s plan was to do the big milk solids, make the most of the high pay-out, feed palm kernel, and have a high stocking rate to utilise grass grown. In short, the grass didn’t grow. We ended up 4.5% behind for the season compared with the previous year. Our ward was 11.5% behind. Our Farm Working Expenses blew out from $1.75 to $2.50. We just have to mark it in the ground and move on to the 2020/2021 season.
Is Fonterra an unco-operative co-operative? If you have ever attended a Fonterra-hosted meeting their whole focus is about the shareholder. This is hard to believe considering that, since the capital launch of Fonterra, shares have gone from $8.20 to now $3.78. I would also like to note that when the banks lend money for shares, they hope the dividend would pay the interest. Umm… what dividend?
Cash flows in and out. In February we commenced work on the next season’s cashflow, working on new ideas while reflecting what has happened previously. To do this successfully we need to work on a forecasted payout that should be provided by Fonterra. These timelines do not meet because Fonterra does not set its advance farmgate milk price until the 25th of May. That’s right, six days before the new season starts. Rubbish!
To add to the problem of making an accurate cashflow, Farm Source’s Payment Predictor is misleading. I will explain this failing. On the 1st of the month I go onto Farm Source’s website and enter in the details of the actual milk solids we did the previous month to find out how much money I will get on the 20th from Fonterra (now the 15th). Simple data entry. Then Fonterra comes along and does something different with their workings and I’ve got a difference of 8-15% less than what the Payment Predictor said it was going to be.
With any business you have risk. One of Fonterra’s tools is that they provide the platform of a fixed milk price. This is where suppliers can fix a percentage of total milk solids at a fixed amount. Through the season this has different releases with different prices. They charge a small fee per kg MS. Every shareholder can apply to do this but a supplier, such as a 50/50 sharemilker, cannot apply for this without the shareholder.
I live and work in Northland so I must quickly raise the flag for our provincial growth fund. It is hard for a co-operative to be fair to everyone. That’s why some people don’t like the principle of the fixed milk price. Fonterra’s answer is that all shareholders are eligible. The winter milk quota price is a different story. How close you are to winter milk processing plants determines how much premium you get, which is pretty crap really considering that in Northland we can grow good pasture in the winter and, with few free-draining soils, leaching is a very limited problem. We should get the highest premium. Where is the co-operative?
Last season Fonterra released its Cooperative Difference programme. This is split up into different areas like milk quality, environment, etc., and it takes a lot of work to achieve these levels. As a reward you receive Farm Source dollars. However, the work is normally done by the supplier, not the shareholder. Who gets the reward? The shareholder. This point was not advertised very well. I heard about it only last month on social media.
Don’t get me started on current regulations to supply and QCONZ. That’s another day.
P.S. I am still waiting for my hand sanitiser.