Friday, March 29, 2024

Counting the co-operative benefits

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After five years establishing two dairying units totalling 1000 cows John Gregan is again ready to step into an industry role, this time as a member of Fonterra Shareholders Council (FSC) representing South Canterbury.
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Fonterra and a co-operative ethos were big drawcards for John and his wife Cara when they decided to convert.

“The meat industry’s driven by procurement. All the focus goes on getting the next lamb down the chain in an industry that’s diminishing in size,” he says.

“You hear figures quoted like the meat industry spends $5 onshore in procurement battles for every $1 it spends offshore marketing the product whereas in the dairy industry those figures are probably reversed.”

Unlike its co-operative cousins in the meat industry the 2001 mega-merger has enabled Fonterra to operate as a true co-op and continue to be farmer-led and farmer-driven. The council and the board can expect a vigilant watchdog in John to ensure that remains the case.

He and Cara have invested heavily in this industry and don’t want to see it make the same mistakes as the one they’ve left.

He’s already made his views known, railing against what ended up as short-lived tactical pricing aimed at staving off competition. It was introduced just as the Gregans were beginning their dairying venture and provided greater returns for those who looked like they might join another processor – in their case the-then New Zealand Dairies (NZDL).

It caused a backlash from loyal farmers including John and Cara given they weren’t offered the price because they hadn’t indicated they were considering going anywhere else.

“I was pretty furious about it. Doing deals on the quiet and paying farmers differently was one of the reasons I left the sheep industry. I wrote a letter to the board, I was that mad about it.”

He was glad to see the co-operative spirit quickly saw a reversal of the policy. John’s behind the flexi contracts Fonterra is now offering as they’re upfront and will help growing farmers get over the hurdle the higher share price has created.

He wasn’t a supporter of trading among farmers at the outset but “it’s here now” and he’s happy to get behind it while keeping a watching brief to ensure it’s doing what it set out to do without bringing negative impacts.

He also wants assurances the milk price is robust given the problems that surfaced late last year with the wide disparity between the powder and cheese and casein prices.

The integrity of the milk price is paramount and any distortion to profits and dividends has to be avoided, he says.

While share price creates headaches for growing and new entrant farmers Cara points out that on the flip side, having significant capital invested in your co-op can be an incentive.

She compares the $7000 they had invested in their meat processing co-op with the more than $2.5m they have in shares in Fonterra.

“That kind of investment certainly makes you take a lot more notice of what your co-op is doing. If it comes free you don’t value it,” she says.

The additional debt they’ve incurred to convert, while something they focus on reducing, is also put in perspective by the returns they now receive.

“We produced about 300kg/ha of product at a return of about $4/kg. Now we’re producing 1200kg/ha of product – so four times as much and we’re getting paid twice as much per kg for it.

“Granted our farm working expenses are higher but we keep them at less than 50% of gross income and when we were sheep farming they were still about that 50% level.”

Monthly income is also a big bonus compared with the lumpy income of sheep farming.

“We’re harvesting milk 260 days of the year compared with having so much risk around just 30-40 days (over lambing),” John says.

Instead of much of their income coming in after comparatively few stock trucks head off with the season’s lamb crop, the milk tanker, dubbed “the money truck” rolls in and out the gate every day of the season, spreading the risk and creating a more even cashflow. John’s enjoying the opportunity to be involved in industry politics in a much more positive industry.

He’s completed a Fonterra governance course and says the council role takes a lot of time with plenty to keep on top of. But getting closer to the inner workings of the mega-co-op will be intriguing and helping link farmers with that is something he’s looking forward to.

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