Friday, March 29, 2024

Milk and mining in new role

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Some dubbed him Fonterra’s fall guy after the botulinum false alarm, the effects of which are still reverberating around the Chinese market, but Gary Romano hasn’t fallen from grace with the Chinese.
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He’s two months into his role as Pengxin International chief executive, based in Auckland, and is back in the milk business.

He’s also back in the mining business, overseeing Pengxin International’s investments in a gold mine in South Africa and a copper mine in the Democratic Republic of Congo.

It may seem like an odd mix but it turns out Romano’s background fits the mix perfectly with a 15-year career in mining before joining New Zealand Dairy Group in 1998 and an equal number of years spent in the dairy industry in senior roles in Fonterra and its predecessors.

He’s now responsible for all of Pengxin’s assets out of China which as well as the mining and dairy interests include a soya farm in Bolivia and a construction company in New Zealand that’s currently working on a development at Gulf Harbour.

The construction side of the business is closest to Pengxin’s natural core business in municipal water infrastructure.

As part of his role he also holds the title of Milk New Zealand chief executive, a title that’s ironically pretty close to his previous title at Fonterra. The Chinese company’s milk business here has so far been limited to owning farms and a third-party processing arrangement with South Waikato-based Miraka.

Miraka has invested $27 million extending its plant to create a UHT operation that processes 250ml packs for Shanghai Pengxin’s Milk New Zealand under the brand TheLand. Some of the company’s farms supply the plant near Taupo although the bulk of the 16 former Crafar farms supply Fonterra.

Pengxin made no secret of the fact it wanted to set up its own processing operation to give it a vertical reach all the way from the green pastures of NZ to the hands of retail consumers in China.

“We do want to supply consumer-branded dairy products into China and be able to do that with some kind of control right through the supply chain. We think it’s reasonable to have that kind of aspiration,” he said.

But the NZ Government isn’t keen on the model.

Rather than viewing the roadblock as unfair, Romano is looking first to fully understand the reasons behind it and then work on other ways to achieve the Government’s policy objectives.

“It’s something we want more clarity on and to have more discussion around,” he said.

“We want to have control but we don’t have to own it all.

“We (Shanghai Pengxin) want to find a solution that makes sense for NZ and maximises the value back to NZ farmers and creates a business that’s viable for ourselves.”

He points to the company’s history of partnerships with government-owned Landcorp managing the North Island farms it paid close to $200m for in 2012 and the processing arrangement it has with Miraka separate to its supply arrangements.

He also highlights the joint venture company set up with two of Synlait Farms founding directors, John Penno and Juliet Maclean, earlier this year to form SFL holdings which now owns Synlait Farms’ 13 dairy farms in Canterbury totalling about 4500ha. He’s a director of SFL Holdings, sitting on the board with Maclean and Penno.

When asked about the company’s dairy strategy he said his answer was necessarily a little vague because it needed to be flexible in its approach.

“We don’t necessarily see ourselves being owners of all the milk. We want to be confident there is enough milk available to support any brands we want to launch. That could mean some further outright purchases, joint ventures with large farming organisations and ultimately might mean setting up contracts with farmers to source their milk from them.”

Flexibility is also the key word when it comes to processing strategy.

“We’d like to have control of the total asset but in meantime we’ll work with partners to come up with best possible solution.”

All of Synlait Farms’ milk currently goes to Synlait Milk but despite the link with the two founding directors it’s just like any other supplier with its own supply agreement.

Shanghai Pengxin owns 74% of SFL Holdings so Maclean and Penno are minority shareholders.

The arrangement opens the way for Synlait Farms’ milk to be siphoned away from its processor which also has a strong Chinese connection through the almost 40% shareholding by Bright Dairy.

But equally Synlait Farms’ milk, which is ultimately Shanghai Pengxin’s, could join the other companies for which Synlait Milk carries out third-party processing, especially once its canning and packaging line is completed and the company gains Chinese registration.

What’s clear is Shanghai Pengxin is in NZ for the long haul and is very much planning on staying, Romano said.

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