Time to weigh up all the TAF options
The Fonterra payout drop has hit the headlines, adding to the unease many farmers will be feeling as they watch Europe teeter on the brink of insolvency.
The situation is not actually as bad as I feared it could be, as the forecast for next year is still above $6. Whether it remains that high though is anyone’s guess. The good news is long-term demand for our products will only increase. At present, this demand is being offset by the fact that not only New Zealand dairy farmers had a bumper 2011-12 season. The United States and Europe also had great summers, so there is a glut of product sitting in chillers around the globe.
However, we can count on this being literally eaten through and the way commodity prices have fallen this year, the sooner the better.
This volatility and seasonal uncertainty is why I believe Fonterra shareholders have to carefully weigh up their options and the facts surrounding the Trading Among Farmers vote which is likely to be held at the end of next month.
There has been a lot of politics and personalities involved, but what is important is the future of the co-operative. One scenario that has crossed my mind is the day when a Waikato Jed Clampett shoots at a bunny in his paddock and up pops a geyser of high-quality, bubbling crude.
So realistically, it is more likely to be one of the oil multinationals who are carrying out exploration expeditions looking for oil off our coast lines than a salt-of-the-earth farmer who makes the real find. However, the point is, if a major and accessible field were found, the New Zealand dollar would probably be worth about US$1.20 overnight. That would push the dairy payout down and farmers would suddenly be jumping to the independent processors, trying to get cash.
Fonterra would be paying out on those production shares, with no hope of onselling them. That is the redemption risk which has been so bandied about.
It is important to realise this is not an impossible scenario. It could happen with dizzying speed and due to factors outside farmers’ and Fonterra’s control.
Last week’s Budget may have been the ‘‘Yawn Budget’’ for those non-farmers who had the time to actually watch it, but from what I caught up on later in the day it was a reassuring reiteration of a sound economic path. Perhaps if a few more European countries followed our lead, they would not be in the straits they are in.
We all know what is nice to have, but this is a time for paring back to the essentials, not hoping we can win some kind of global lottery to fund the extras.
The Budget forecast a return to surplus by 2014-15. This will be a huge achievement in today’s global economic climate. While reduced government spending is part of the package which is delivering this, I hope more New Zealanders also acknowledge the role played by the primary sector in ensuring New Zealand has not tipped into the type of chaos seen in Europe and Britain, which are heading back into recession, and is avoiding the wild swings seen in the US.
With an economy based on producing something every person on the planet needs – food – New Zealand’s task right now is to build a safe and solid platform from which we can launch a prosperous future.
One Government idea which I am not so keen on, however, is increasing the teacher pupil ratio to 1:27.
This will have a massive effect on rural children’s education and potentially put workers off taking jobs in areas with reduced teacher numbers in schools.
Rural schools play an important part in our communities and I hope the Government listens to Federated Farmers’ calls for a policy rethink, especially in rural areas.
Some schools already operate under a sole-charge teacher, which is not ideal from either an academic or a health and safety viewpoint in the event of illness or injury. These teachers have to make sure they are delivering the appropriate education to each of their pupils, whether they are new entrant or year 10. That is hard to do, no matter how small the school.
Many rural schools are already understaffed. Having just three teachers to around 60 children ranging from five to 14 years old is quite common. Under the new rules, those children would qualify for only two teachers.
Cutting teachers will definitely make families think twice about taking on farming jobs in rural areas. Ensuring their kids get a quality education by sending them off to school will be yet another cost rural people have to bear.
At a time when there is a real shortage of agricultural workers, this is not what New Zealand needs. The Government should be strengthening rural communities, so more families can play their part in growing New Zealand’s biggest export earning sector.