Richie and me: the men to rescue Fonterra
Ihave several brilliant ideas on how to fix the woes of Fonterra. New Zealand’s poster-boy company posted the first annual loss in its 17-year history this week, to much tearing out of hair and ripping of dairy overalls.
The company makes about $20 billion a year but, this financial year, instead of posting a big fat profit, it has recorded a $196 million loss.
I feel partly responsible, and that is why I’ve taken it upon myself to find answers. In fact, I feel so responsible I’m stepping up to offer myself for the job nobody apparently wants. Chief executive of Fonterra. Many have been approached. None are interested.
It’s a poisoned jug, to be sure, but I am not one to shy away from duty. My sense of responsibility for the historic loss lies in the fact that Fonterra’s former chief executive, Theo Spierings, who is Dutch, is said to be the cause of the failure. As someone who was born here but clearly of Dutch heritage, I feel I have to put things right. Spierings’ failure reflects badly on anyone of Dutch heritage, and those of us so implicated are obliged to fix things.
Before I outline my brilliant plan to get Fonterra out of the effluent pond, let’s just remember that Spierings oversaw the highest ever milk price of $8.40 in 2014. He also made sure struggling farmers got interest-free loans and helped Fonterra become the leading dairy company in China.
Fonterra-owned Anchor became the top consumer dairy brand in China and more than 140,000 New Zealand schoolchildren got a free serving of milk every day.
Take away the writedown on the failed $750m investment in the disastrously managed Beingmate operation, based south of Shanghai, and the one-off $183m payout to French food giant Danone over a false botulism scare in 2013, and Spierings doesn’t look so bad.
There appear to be four major problems with Fonterra that I need to address.
First up, its 6000-odd staff are all paid too much. This is perhaps the easiest problem to fix. My first action as chief executive will be to halve everyone’s pay. That includes me, which means I will be paid only about $1.3m in salary and benefits a year. That’s only $25,000 a week and, don’t forget, I lose about a third on tax. It’s hardly worth my while but, like I say, I’m prepared to take one for the team.
The next problem is Fonterra’s management doesn’t have a very warm, cuddly image. Spierings didn’t have a lot of time for the media and was therefore regarded as aloof and arrogant.
Again this is not hard to fix. I will hire Richie McCaw to be Fonterra’s spokesman on all matters, including disappointing payouts and profits. McCaw won’t even have to give up his day job. We will just wheel him out as required. No farmer or rural commentator will want to be seen to criticise McCaw if they want to drink peacefully in the local pub, so that should mute a lot of criticism.
The next problem is the continual haemorrhage of money in China through things like joint ventures. The way to fix this is simply to have no more joint ventures or investments in China. We will provide the Chinese with our premium product at a good price and that will be it. Problem solved. We sell, China buys.
Then comes the biggie. My experts tell me the model on which Fonterra works is plain wrong.
In a nutshell, it buys milk from its ownerfarmers and turns a lot of it into branded products which it then sells around the world. But if the farmers get a big price for their milk, the margin Fonterra earns on the downstream products is lower and the products, like frozen yoghurt and pizza cheese, don’t sell as well.
Farmers then moan that the payout on the shares they have in Fonterra is pathetic. Again this is not insurmountable and many experts have already pointed out the fix. You separate the two divisions so one buys the milk from the farmers and sells it to the other business, which makes the value-added products and markets them. Then you sell one business to the highest bidder, which is going to make the books look much better.
How this is going to work is a little unclear but that is where I earn my big bucks. Needless to say, New Zealand is full of experts to help me.
Anyway, thanks to my cost-cutting and the sale of one part of the business, every farmer will get an amazing payout and their shares will earn a healthy dividend and experience a solid increase in value. And I will get my amazing performance bonus.
As I write this our lambing is getting into full swing and we’re getting lots of triplets this year. The benign start to the spring in Southland has been appreciated by everyone.
Like most sheep farmers, I’m very aware of the impact those crucial first three weeks has on lamb survival and the impact the dreaded three-day storm can have on your fortunes.
Fingers crossed the weather stays reasonable till the end of the month!
Spring’s arrival with promise of longer warmer days, always prompts me to look to the future with hope and optimism, tempered by pragmatic reality.
When I think about the decade ahead, I see some real potential opportunities for Southland as well as some threats to our economy depending on how some issues are handled, and the pace of change.
Climate change continues to dominate the headlines as the Government fast tracks progress on reducing greenhouse gases.
The latest is an interim report released by the Commissioner for the Environment, Simon Upton, on methane produced by animal emissions, which suggests we need to significantly reduce our methane emissions below 2016 levels.
There is a simplistic view in some quarters that all we need to do to remedy the problem is to get rid of ruminant animals and plant huge tracts of New Zealand in pine trees.
More trees will be good, but not just pines, natives are going to be important.
To focus on logs only as a commodity would be worrying because we need to be at the high end of the market.
There is an old adage ‘that if we don’t learn from our history, we are doomed to repeat it’.
The fact that New Zealand’s prosperity over the past 150 years has relied heavily on ruminant animals – cattle, sheep, deer – should also not be lost during the debate.
If we are serious about reducing our greenhouse gas footprint we need to foster an environment that encourages and rewards innovation and technology in land use and agriculture.
When I think back to the television programmes we watched 50 years ago – with Maxwell Smart’s shoe phone and Star Trek’s video phone – I’m reminded of the fact that within a generation fiction has become reality.
If the human race has the ability to dream or imagine a concept, in the right environment,
When I think about the decade ahead, I see some real potential opportunities for Southland as well as some threats to our economy depending on how some issues are handled, and the pace of change.
we can turn those dreams into reality in a relatively short time.
The Productivity Commission states that in order to meet emission goals the pace of change within our economy over the next 30 years will have to be at least as fast as the past 30 years.
So, we all need to be involved in this conversation and not only the experts.
The Provincial Growth Fund has also been in the news, and provides a one-off, three-year opportunity to attract significant Government funding to our region.
We need to be ambitious and united in our goals for a positive, thriving future for Southland.
We are fortunate to have five grandchildren (so far!).
I do think about what legacy we will pass on to them from the decisions and options we choose over the next few years.
If I fast forward to 2030 and imagine what our province might look like, I see a positive picture.
Our population will have grown steadily in response to attractive employment opportunities following the better-late-thannever celebration of SoRDs reaching its 2028 target of 10,000 more people.
The new restaurant in the recently refurbished and earthquake strengthened water tower wins a national award.
The farming industry continues to flourish with niche marketing of high-value and value-added products, including grain crops.
Invercargill airport now receives regular international flights on the back of increased tourist numbers, abundant seafood exports and a successful marketing campaign into Asia for the humble Southland swede, which has been discovered to have health benefits similar to deer velvet.
Bluff is receiving regular cruise ship visits following restrictions placed on the number and timing of cruise ships entering Fiordland.
This has prompted the return of a passenger train on the Bluff to Invercargill line.
Hydrogen refuelling stations are dotted through our city and towns, catering to the clean green hybrid vehicles, now popular in Southland.
We need to look no further than Martin Luther King, or JFK for examples of visions and dreams becoming reality, so let’s be ambitious for Southland and New Zealand.
Nicol Horrell is the chairman of Environment Southland.