Craig Norgate dreamed up a good idea at the wrong time when he proposed PGG Wrightson set up and spin-off a business developing dairy farms in Uruguay. The global financial crisis hit and NZ Farming Systems Uruguay couldn’t raise debt funding to finish the job. It was also marked down as a stock because of the fees owed back to Wrightson, its choice of land in South America and a drought which cut production. Now the stock has surged after competing suitors lined up to buy the company.

Olam International made a per-share takeover offer higher than the stock had traded in 12 months. A second group, Uruguay Agriculture Group, then trumped Olam and Farming Systems issued a “don’t sell” notice hinting a third party was in the wings. Last week, Olam came back again, offering 70c (up from its previous 55c) and winning over 7% holder the ACC. Wrightson has also agreed to sell. And on Friday, Uruguay Agriculture withdrew from the bidding battle saying while Farming Systems looks attractive, “the opportunity does not look so good for us at that price.” Olam is a global agri-business and food commodity group which has enough smarts not to chase a dud, which has been the opinion of the local market until now. What it does bring is deep pockets of capital, able to provide funding for Farming Systems to complete its dairy farm developments and ride a wave of growing demand for dairy.

NZ’s output of people with tertiary qualifications in agriculture is falling behind the country’s needs as a generation of students is put off farming by perceptions it is “too hard,” has uncertain income and does not bring the lifestyle it used to. Massey University professor Jacqueline Rowarth told Parliament’s primary production committee the country is in danger of not being able to maintain its agricultural competitive advantage and excellent food safety and animal welfare records if too few high-quality students study agricultural science to graduate level.

She suggests one way to lift agriculture’s profile among bright students would be to offer 100 three-to-five year fully funded scholarships. This would compensate students for the opportunity cost of the long contact hours in agriculture degrees, typically 24-26 hours a week compared with business degrees, which at 10-14 hours a week allow virtually full-time employment. She also commends a recent initiative by the Primary Sector Group suggesting a national trade academy should be established for primary-sector industries and a single primary sector Industry Training Organisation be formed.

The Group told the committee two such bodies would rationalise primary sector qualifications by providing generic qualifications and programmes where possible and lift the profile of primary sector vocational pathways by engaging with schools. Rowarth says “Dirty dairying is a highly effective negative branding campaign associated with the agricultural industry, even though it is often misleading. Comparable marketing in favour of the industry is lacking.”

NZ’s output of people with tertiary qualifications in agriculture is falling behind the country’s needs as a generation of students is put off farming by perceptions it is “too hard,” has uncertain income and does not bring the lifestyle it used to. Massey University professor Jacqueline Rowarth told Parliament’s primary production committee the country is in danger of not being able to maintain its agricultural competitive advantage and excellent food safety and animal welfare records if too few high-quality students study agricultural science to graduate level.

She suggests one way to lift agriculture’s profile among bright students would be to offer 100 three-to-five year fully funded scholarships. This would compensate students for the opportunity cost of the long contact hours in agriculture degrees, typically 24-26 hours a week compared with business degrees, which at 10-14 hours a week allow virtually full-time employment. She also commends a recent initiative by the Primary Sector Group suggesting a national trade academy should be established for primary-sector industries and a single primary sector Industry Training Organisation be formed.

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The Group told the committee two such bodies would rationalise primary sector qualifications by providing generic qualifications and programmes where possible and lift the profile of primary sector vocational pathways by engaging with schools. Rowarth says “Dirty dairying is a highly effective negative branding campaign associated with the agricultural industry, even though it is often misleading. Comparable marketing in favour of the industry is lacking.”

FedFarmers CEO Conor English is warning NZ’s capital markets and economy are suffering from a lack of savings and capital depth. He says in the mid 1980s NZ had a Govt which pronounced agriculture a sunset industry, and Wellington would become a Zurich of the South Pacific but this never happened. “Wellington has been asleep at the wheel.” He says demand for protein world-wide is strong and this trend is NZ’s friend. However, NZ’s credit channel is weak. “We need capital to grow and develop but our capital markets here in NZ are shallow, thin and expensive. Players from other nations are right now looking at the convergence of these two issues and what opportunities it may present for them. But what about for NZ? Are we asleep at the wheel?”

English believes NZ must take a strategic view. “Our challenge is not just how we can capture more wealth for NZ from the physical products we produce and sell, but also from the Intellectual Property (IP) around our systems and the know-how involved.” English believes NZ needs to formulate an “agricultural intellectual capital strategy” to prevent the wealth from innovation being lost overseas. “We’ve already lost Nufarm to the Australians and John Nathan’s Glaxo in the 19th century to the British. Both started in Bunnythorpe out of physical primary production. Are we selling genetics IP without thought to how we get a long term return?” He adds overseas capital is now looking at assets here. This could be beneficial if it enhances NZ’s ability to implement an Ag IP strategy which captures benefit for NZ and its farmers. “Let’s find a solution so our future generations can benefit from our Kiwi ingenuity.”

The dairy industry’s various battles over resources, including water, have meant new phrases have entered the public consciousness, like it or not. “Dirty dairying” is an example. DairyNZ has kicked off a $2m “Go Dairy” campaign, initially with TV ads, later newspaper and magazine features as well as a school campaign, aimed at an increasingly rural-disconnected urban population who are often unaware of the industry’s contribution to the economy, and why they should be proud of it.

The new campaign promoting the $10bn industry follows a survey of 1000 people which found while 71% had a favourable view of dairying, and 70% understood there is a correlation between export success and their own material standard of living, only 57% saw dairying as having a noticeable impact on their lifestyle. BNZ economist Doug Steel says NZ consumers appreciate they’re paying more for dairy products when world markets are strong and paying a premium for whole milk powder. He says “they don’t tend to appreciate that when demand for dairy products is high, that pushes our currency up, and products like petrol are cheaper because the country has greater buying power. You can turn this on its head too. If demand for our commodities wasn’t strong, and the prices for milk and meat tanked the kiwi dollar would fall like a stone. Say it fell to 40c; then you’d see petrol at something like three dollars a litre.”

Steel says in general, the public doesn’t understand how it benefits from the performance of the export sector. DairyNZ CEO Dr Tim Mackie says the dairy industry isn’t asking for the right to do what it likes. It wants to co-exist with others, and solve environmental issues it is aware people have concerns about. Mackie says NZ has something special in its dairy industry, and it’s important it is able to sit down and talk with the community and Govt about key issues, as well as how to address them.

AFFCO’s independent directors have recommended minority shareholders don’t accept Talley’s Group’s 37c-a-share offer for the 47% of the meat processor it doesn’t already own - unless they need the money. The directors themselves say they’ll stick with the company, which will end up at least 76%-owned by the fishing, ice cream, meat, dairy and vegetable group. AFFCO requires considerable ongoing investment to keep its plants up to export standard and reinvestment comes at the expense of dividends.
Chairman Sam Lewis acknowledges the challenges for the meat industry in his formal response to the Talley’s offer, saying overcapacity and an uncertain global economic environment has created uncertainty and speculation around “industry structural issues.”

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Lewis says the industry alone can’t take all the blame for dwindling stock numbers and conversion of pastoral farm land to more profitable uses. “Meat prices in foreign currency are at all time highs, however the volatility of the NZ exchange rate, poor wool prices and increased farm costs both in farm inputs and land have also contributed to this outcome.” The takeover is a requirement of Talley’s agreement to buy the 24% stake in AFFCO owned by Spencer family interests and having to make the same offer to all shareholders. Talley’s will tighten its grip on a wider segment of the nation’s food production including AFFCO’s 35% stake in cheesemaker Open Country Dairy.

Federated Farmers is risking public backlash over its attitude towards environmental protection by opting not to sign a previously agreed commitment to clean up the Manawatu River, claiming not all parties agree the river is in a poor state. The accord was signed by 16 groups, including DB Breweries, Fonterra and Palmerston North City Council, at a public ceremony on the banks of the river in Palmerston North last week.

However, Fed Farmers Manawatu/Rangitikei president Gordon McKellar is defending its change of heart saying it never indicated it would sign the accord and its decision in part reflects ongoing concerns about the local regional council’s One Plan. “It would have been a bit hopeless, us signing the accord, if [One Plan] was going to send farmers broke anyway.” McKellar adds there has not been enough time for either the two affected provinces or the national board to ratify the document.

The farmer group is also upset at some of the wording in the accord. Fed Farmers Tararua president John Barrow says his members take issue with a paragraph in the accord which reads “we acknowledge the community has concerns and has identified the river is in a poor state.” Barrow says the statement is not factual … “It’s a very emotionally charged paragraph and we need to get rid of all the emotional claptrap if we’re going to do this process right.”

Meat Industry Association (MIA) chairman Bill Falconer says there are no pre-conceived ideas of what the MIA/Beef & Lamb NZ sponsored meat sector strategy should produce. The strategy, whose terms of reference have just been released, is aimed at addressing a fundamental lack of profit behind the farm gate and at the processor/marketer side of the red meat spectrum.
Falconer says “it’s aimed at well-researched options that might enable sustainable profit across the value chain. What participants do with those options is their own decision. We’re not justifying an outcome at the beginning stage, but looking to establish sensible options which participants can respond to. This could include decisions in collaboration with others.” Recognition lack of profit is the main issue means “we can concentrate on that rather than saying, let’s assume that this or that is the solution to the sector’s situation.”

He says the first two months will be an intensive interrogation, including whether what the sector has is a production-driven supply chain, or a market driven value chain. Pinpointing of the steps in such a value chain will also show what steps add value and what don’t. Falconer says the initial report, to be co-ordinated by Deloitte Consulting’s Alasdair MacLeod, will be delivered before Christmas, with more discussion and conclusions to come in the New Year.

NZ’s determined pursuit of its rights of access to the Australian apple market has implications for other exports of primary produce which end up being blocked by spurious claims over bio-security. Trade Minister Tim Groser says the WTO ruling helps build the case phytosanitary rules must be based on science. Sheepmeat, kiwifruit and dairy exports could also benefit. The apple stoush has been one of the few points of friction in a trade relationship underpinned by the CER agreement and looks closer to resolution, though Aust will appeal the verdict and can probably stretch the debate out for longer yet.

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Groser says Chinese officials were watching the WTO case “very closely.” While China has its own concerns about crop pests, its seasons are in sync with NZ’s, so apples can be shipped in its off-season. Groser says NZ currently ships only small consignments to China, via Hong Kong and “we want to establish a basis for long-term supply into China.” He says generally the CER framework has worked well and the solid trading relationship with Aust highlights why no formal dispute resolution processes were put in the accord. Hence there was nowhere other than the WTO for the parties to “let off steam.”

Exactly how much rent to charge for the 231 pastoral leases of NZ’s photographically iconic high country farms has been a fraught discussion for a century or so. The Govt has announced a new formula which will change the Land Act 1948 tenure rules and charging regime. Previous lease payments have been based on the value of unimproved land, a tricky calculation at the best of times especially as land values have been increasing while income has declined. The leaseholders have property rights, like freehold, over the improvements they make.

High Country Accord chairman Jonathon Wallis says “The new system brings transparency and certainty to a process that was becoming increasingly complex and costly to implement correctly.” The new formula, the legislation for which is about to move through Parliament, is to base rents on a property’s productive capacity, with a fixed component and a variable amount which will change six monthly or yearly. Agriculture Minister David Carter says he wants the Bill, for the 1.6m hectares of leasehold land, mainly in Canterbury and Central Otago, introduced to the House later this year.