He moved quickly to defend the co-operative model amid dismay at Westland’s offshore sale and increasing scrutiny of Fonterra as it tries to reduce its heavy debt.
Presland shied from any direct criticism of Westland’s unwinding.
Instead he pointed to Keith Woodford’s analysis earlier this year that highlighted management decisions at the co-operative including not pursuing A2 milk, expanding into Canterbury and a cheap-in, cheap-out share price of $1.50 a kilogram of milksolids.
Woodford cited those as key planks of the co-operative’s demise.
“And history shows that with competent management the co-operative model has stood the test of time.
“Here in NZ, of the top 10 co-operatives eight are directly involved in agriculture and horticultural sectors,” Presland said.
He acknowledged the higher capital demands that accompany dairy and meat processors compared to co-operative retail outlets like Mitre 10 and Foodstuffs.
“The challenge is to balance capital retentions with annual payouts appropriately.
“It is simpler with retail outlets where members receive a pro-rata dividend at the end of the year based on turnover contributed.
“Retail facilities are also cheaper to construct than dairy plants and there is more complexity in balancing against milk prices.”
He agreed with the growing chorus of analysts calling for Fonterra to increase its retentions to reduce debt.
“But any poor performance from co-operatives due to capital investments made, abandonment of retained earnings policies and poor market investment decisions has no relationship with the co-op business model.
“It’s more to do with wise decision making, good governance and effective leadership.”
He pointed to Tatua Dairy Co-operative as an example of how the model, with all those factors in play, can be outstandingly successful.
Presland also said more than 1000 NZ businesses have been delisted since 2001 because of receiverships, administration or closures.
“Fewer than five of these were co-operatives, mutuals or societies.”
Presland maintained a large, single, co-operative model in NZ’s dairy sector remains vital to give farmers price strength for products overseas.
“I think Fonterra’s focus on core business is pretty key to the future and selling Tip Top is a good move.
“They have a new strategy plan paper due out in September. It will be interesting to see what is in that.”
He said it was a shame there was no way for Fonterra to buy Westland Milk Products to retain 100% co-operative ownership.
