New Plymouth's Tasmanian cash cow is drying up, with Tasman Farms reporting a $10.3 million loss.
That loss has clipped a further $5m off New Plymouth District Council's perpetual investment fund (Pif) in the last financial year and contributed to a $3.9m deficit for the council.
The impact of the Australian drought on Tasman Farms was a key factor in the poor result.
What to do with the fund has become a political football in the 2013 local body elections, with Mayor Harry Duynhoven in favour of holding on to it and mayoral candidate Andrew Judd in favour of considering a sale.
The fund, managed by Taranaki Investment Management Limited (Timl), was created from the sale of the NPDC's Powerco shares in 2004 for $259m. It peaked in value at $324m in 2008 but is now only worth $212.4m, partly because of money the council has taken out in annual release payments.
Timl has conceded the fund is overweighted in Tasman Farms and has commenced the process to reduce its exposure.
Despite the loss Mr Duynhoven remains confident in the investment.
"If you look at it over the long term we are in a good position," he said last night.
Mr Judd said the loss came as no surprise.
"It highlights my message that it's time for us to re-evaluate the use of the fund, the way the fund is set up and the way we have been spending and relying on the fund," he said.
Timl chairman Keith Sutton yesterday confirmed the fund's total equity had dropped from $227.4m in the previous year.
"While the Pif outperformed benchmarks in four of the six smaller asset classes that we invest in, the major alternative asset class, which includes our investment in Tasman Farms Ltd in Tasmania, underperformed," he said.
Mr Sutton said milk production continued to grow but overall income had been hit by a second year of low payouts in the Australian dairy industry.
"The drought undermined confidence and forced market livestock prices lower, resulting in a $7.1 million livestock writedown over the year."
He too remained confident of a more favourable return over the next year.
"We deliberately chose to retain herd numbers and cow condition at higher levels to maintain a strong position for the expected rebound by over $1 per kg of milk solids (kgms) in the coming year."
Mr Sutton said strategies for rebalancing the fund's asset classes and changes in asset allocation had been discussed with the council. It has been reported that Chinese interests are believed to be in talks to buy the controversial $152m Tasmanian dairy farms.
Mr Sutton said formal discussions had been terminated but there was still interest.
But he would not divulge any details of potential investors.
"We wanted to involve other investors in the asset and raise capital to continue the improvements in Tasmania."
Mr Duynhoven said the stock's condition and the production was better than that in the rest of Australia.
"You don't go into farming for one year, you go into it for the long term."
He believed the fund was being well managed and its drop in value was due to previous councils taking too much in annual release payments.
Mr Judd said the council was now in a position where it had to wait for the farms to recover because he did not want to see a fire sale.
However, he questioned how long the council should wait.
NPDC chief executive Barbara McKerrow said the council's overall financial result for the year would have been a surplus of $2.9m without the Pif reduction and the $2.3m write-off of Yarrow Stadium assets, which were transferred to Taranaki Regional Council.
- © Fairfax NZ News
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