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Dairy Sector Strong As It Gazes At Uncertain Future

Dairy Sector Strong As It Gazes At Uncertain Future

Trans Tasman Political Pulse

INSIGHTS ABOUT THE NEWS - The dairy sector may be facing a future filled with political uncertainty, but the Fonterra result shows it is working from a strong base with potential to grow further and strengthen the wider economy.

As reported in Trans Tasman's sister publication The Main Report Farming Alert, Fonterra delivered a solid result, marked by foodservice sales growth into China. Its returns ensure farmers’ protability is back close to long-run averages of $990/ha, with a further lift of protability projected in the current season.

The dairy industry is a vital engine for the economy, but it needs solid Govt backing, particularly as it competes in global markets. Currently, 87% of all NZ dairy exports are restricted by quotas or tariffs of more than 10%.

Opening up market access and tackling non-tariff barriers must remain a priority for the incoming Govt.

An outstanding feature in Fonterra’s latest report is the growth it is achieving in the sales of foodservice products which is exceeding expectations, reaching 10% of overall milk supply.

This (plus the innovative products being marketed by A2 Milk, Synlait, Miraka and Tatua) underlines the evolution of the dairy industry, with Fonterra on track to double the export of higher-value products by 2025.

Across the group there has been good cost control and solid sales growth in South America and the broader Asian region. Fonterra Shareholders Council chairman Duncan Coull said after a couple of lean years the nal payout of $6.52 for a fully shared-up farmer including a 40c dividend is satisfying.

Some of the dividend will go toward debt repayment. However, cyclical costs, such as dairy grazing and supplementary feed, are expected to increase expenditure by $0.20-$0.40kg/MS.

There is also a strong desire to reinvest after the lean period led to underinvestment. This is expected to increase working and capital expenditure in 2017/18.

Despite this farmers' confidence has eased back from the record highs of the previous quarter in the latest Rabobank rural condence survey. Pastoral farmers were the primary contributors to the drop in overall condence, with sheep, beef and dairy farmers less optimistic.

Policies relating to the farming sector featured prominently during the election campaign, and the prospect of increased Govt intervention and taxation within the farm gate appears to be a contributor to the dip in farmer condence.
Trans Tasman’s sister publication, The Main Report Farming Alert, is a weekly source providing you with in-depth news, analysis and opinion on NZ’s agriculture sectors.

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