Farmers aren't the Grinch who stole Christmas

16:00, Dec 19 2013

With Christmas close at hand, dairy farmers could be forgiven for thinking there may have been a small gift coming from Fonterra.
Fonterra might be farmer owned but it is run as a company and is charged with processing our milk into products sold around the world.

After liquid milk, most people would assume the second easiest dairy product is to remove the water leaving you with milkpowder. Try doing this at home because milkpowder is a specialist product taking a lot of skills and capital. There are various types but the bluetop version is called wholemilk powder and the more fat you remove means you can end up with a greentop version unsurprisingly called skim milkpowder.

Anyone can make cheese and butter, even at home, but you couldn't possibly hope to produce pharmaceutical excipients in your kitchen. There are heaps of products milk can and is being turned into.
What we know is that Fonterra is in a purple patch for milkpowder. So much so, the board could have lifted the milkprice forecast to a record $9.00 per kilogram of milksolids (kg/MS). For those outside of farming, a milksolid is made up of the fat and protein after the water has been removed and it takes upwards of 12 litres of milk to produce one kilogram of milksolids. One reason why Fonterra's board could have announced a higher forecast is the overall demand for milk products. Global production of milk will have to expand by 26 per cent in the next decade just to keep up with demand and that's going to be a tall order.
After saying this Fonterra's board is right to ''hold the payout'' where it is. Don't forget this time last year, we were looking at a great season until it was shredded by that late summer drought.
It is why farmers need to budget conservatively and the last thing to do is to bank the farm on a forecast. The new Canterbury Land & Water Regional Plan may have one big spin off and that's to get our eyes off the neighbouring farm and back onto our farms instead. Rather than expand stock numbers it's about expanding the output of our farm animals.
Twenty seasons ago, ''Daisy'' would have produced 259 kg/MS over the season but in 2012/13, the current ''Daisies'' are producing 346 kg/MS: some 33 per cent more. This gives a major hint as to where the growth in dairy will come in Canterbury and why peak milk will come ever earlier and last much longer.
While Fonterra's board is right to under promise with the forecast we're still awaiting over delivery with the value add. It's been a long wait.
While it's great for farmers to have the milk price forecast held at $8.30 kg/MS, what wasn't so good for Fonterra's owners was the dividend forecast being cut from 32 cents per share to just 10. The dividend is a pretty key marker to the financial performance of Fonterra as a company and 85 per cent of the dividend payout goes to us farmers.
I hope the board is listening because the drive for value-add seems to have stalled while milkpowder has lit the afterburners. While I know markets like the United States, Europe and Japan struggle economically, I've seen with my own two-eyes that there's some growth so why are we missing out? Fonterra has had many distractions over recent years and some of the hiccups of late, including production capacity, may be down to this. It's high time for our board to focus on the business.
Given the environmental aspects of dairying are in the news at least we're doing the business economically. While easy to think what's good for farmers is bad for consumers, the billions we generate in exports get multiplied in the domestic economy many times over. Not convinced it's like a snow ball? The price of wholemilk powder in the past year has gone up by over 60 per cent but what you pay at the supermarket has increased nothing like that. Someone's taking a haircut and it isn't the consumer.

* Willy Leferink is chairman of Federated Farmers Dairy.