Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Fonterra's Monaghan pans dairy doomsayers, defends debt

Fonterra director John Monaghan pans dairy doomsayers, defends cooperative's debt level

By Fiona Rotherham

Sept. 14 (BusinessDesk) - Fonterra Cooperative Group director John Monaghan said critics who claim dairy is doomed, and the economy with it, show a lack of understanding of the market and the structure of the dairy company.

Monaghan told the New Zealand Shareholders Association conference at the weekend that the news was full of gloomy predictions with falling global dairy prices that not only was it the end of the golden weather for dairy farmers, but also the end of the industry.

“Farmers are worried, anyone would be when their incomes are halved in the course of a year,” he said. “The US, Europe and Australia will have to consolidate and learn to live without subsidies but we’ve already done the hard yards and the cooperative is in the best position to weather the storm and come out the other side. Dairy is not doomed or dead.”

Investors were told the high level of debt carried by Fonterra and dairy farms was a major concern to the New Zealand economy.

Paul Glass, director of Devon Funds Management, told the conference that Fonterra was heavily indebted with $7 billion of debt and less than $1 billion of earnings

Farmer debt had also risen significantly in the past 12 years to about $35 billion, with the average dairy farmer holding $18.90 of debt per kilogram of milk solids, Glass said. Given the farmgate milk price is likely to be, on an optimistic forecast, about $4/kgMS this season, he said that’s a really high level of debt versus revenue, let alone earnings.

Monaghan said while dairy farm debt had trebled since 2003, the asset base had quadrupled over the same time. He said 10 percent of farmers held 30 percent of the overall debt.

“Some of the most indebted farmers have the most efficient, lowest cost of production and an ability to service that debt better than others," he said. "The banks have looked at this and shown confidence in it.”

Economist Shamubeel Eaqub also questioned why Fonterra management took on so much debt ahead of the massive downturn in commodity prices and why they hadn’t seen it coming.

Fonterra’s debt-to-equity ratio is 50.7 percent, up 2.2 percent on four years ago, which Monaghan says is within the company's policy range of 44 percent and 55 percent. He’s confident with where the debt is sitting, given the $2.3 billion of regional investment in infrastructure Fonterra had made in the past three years to deal with the volume of milk it has to handle.

Critics say Fonterra’s earnings have not kept pace with growth in the dairy sector. But Monaghan said people shouldn’t listen to the doomsayers that say you can’t add value to milk powder. He said since its formation 14 years ago, Fonterra has grown its ingredients business from $7.9 billion to $16 billion while the consumer and food services business, which is growing at 6 percent per annum, has gone from $4.66 billion to $6 billion.

To give those figures some perspective in New Zealand, he said “the consumer food services business has 28 percent more revenue than Air New Zealand and 80 percent more than Spark in 2014".

With the latest two GlobalDairyTrade auctions showing an increase in prices, Monaghan said optimism was growing but it wasn’t time to open the champagne yet. Dairy prices were predicted to hit the US$3,500 per kilogram of milk solids within the next 12 months, while global demand was forecast to increase 2-to-3 percent and milk production in New Zealand likely to drop 2-to-3 percent, he said.

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 


Digitl: Download 2.0 – Vodafone Wi-Fi Calling hits early milestone
Vodafone says it has 10,000 customers using its Wi-Fi Calling service. It took less than three months to reach that milestone; the service began operating in September... More>>

Energy Resources Aotearoa: New Law On Decommissioning Could Be Costly Overkill
A new law on decommissioning oil and gas fields passed by Parliament today has good intentions but is overkill, according to Energy Resources Aotearoa. "We strongly support operators taking responsibility and paying the costs for decommissioning, which is what all good operators do," says chief executive John Carnegie... More>>


Commerce Commission: News Publishers’ Association Seeks Authorisation To Engage In Collective Bargaining

News Publishers’ Association of New Zealand Incorporated seeks authorisation and provisional authorisation to engage in collective bargaining with Facebook and Google. The Commerce Commission has received applications from News Publishers’ Association of New Zealand Incorporated (NPA) seeking authorisation and provisional authorisation on behalf of itself... More>>


ABC Business Sales: Demand High For Covid-proof Businesses
Despite the continuing challenges facing businesses in this Covid environment, right now there are more buyers looking for a small-medium sized business than there are sellers in the market... More>>


PriceSpy: Producer Prices Increase
New Black Friday and Covid-19 Report* released by PriceSpy says people’s fear of stepping inside physical shops during big sales events like Black Friday has risen since last year; Kiwis are still planning to shop, but more than ever will do it online this year... More>>

NZ Skeptics Society: Announce Their 2021 Awards, And Dr Simon Thornley Wins The Bent Spoon

Every year the New Zealand Skeptics presents its awards to people and organisations who have impressed us or dismayed us, and this year it’s been hard to pick our winners because there have been so many choices!.. More>>



REINZ: Sales Volumes Leveling Out

Data released today by the Real Estate Institute of New Zealand (REINZ) shows there were 44 fewer lifestyle property sales (-2.6%) for the three months ended October 2021 than for the three months ended September 2021... More>>