Survey shows most Fonterra farmers plan to use capital return for debt reduction
A large slice of the $3.2 billion proposed capital return for Fonterra farmer shareholders could end up with the banks.
The Bay of Plenty Regional Council brought the prosecution against Fonterra after four failures of Fonterra’s wastewater (whey) irrigation system at Edgecumbe and two overflows of wastewater to the stormwater system at Fonterra’s Edgecumbe plant resulted in pollution entering the Rangitikei River and other smaller waterways between September 2014 and April 2015.
During the hearing, regional council staff presented evidence that Fonterra had failed to put adequate systems in place to prevent the overflowing wastewater from discharging beyond the site, into the Rangitikei River and a nearby drain.
Fonterra had been “flat-footed” in complying with environmental requirements and failed to make the necessary investments when the industry was at its height, says Judge J.A. Smith.
Releasing his judgment in the Bay of Plenty case, the judge criticised Fonterra actions as bordering on negligence and deliberateness in not making the necessary investment to comply with consents.
Fonterra should also have been inspecting and advising its suppliers on the steps necessary to comply with their consents.
Now the company is having to make these investment at a time when the returns are not as high, the judge said.
It was difficult for the court to impress upon farmers their obligations under the act, but when Fonterra “is found to have failed to invest in such a basic way, this task is made more difficult and this is a significant disappointment to the court,” Judge Smith said.
He said it was “regrettable” a company director or one of the senior managers responsible for capital investment had not attended the hearing. He asked Peter Bird, regional operations management – central North Island, who did attend, to “report his disquiet to the board”.
He warned that if dairying is to continue on the Rangitikei Plans, everyone including Fonterra needs to make sure systems work properly.
Earlier the judge said four of the irrigation offences were, for the purposes of the case, examples of a “deeper malaise in the irrigation application system used by Fonterra” and “representative of a systematic failure by Fonterra”.
Judge Smith said he is now told Fonterra is intending to upgrade irrigators and use cut-off devices, GPS trackers, monitors and other equipment the court routinely requires parties who are charged with offences to install.
“Can I say that I am amazed – and I use the word amazed – that this did not occur 10 years ago when these issues were clearly highlighted by the court in a number of decisions,” Judge Smith said. “Fonterra should be an industry leader, not a laggard in regard to the adoption of appropriate technology to avoid environmental effects.”
The judge said he considered the whey-water irrigation discharges are four examples of continuing system failure by Fonterra to address its obligations in respect of its resource consents and its environmental obligations to the wider community of New Zealand.
From 2010 to the start of the prosecutions was “a period of under-investment in the irrigation systems”.
“Fonterra, through counsel, has accepted that they dropped the ball,” he said.
“I think the matter is more serious than that. I think there was carelessness bordering on deliberateness not to spend money on improving systems.”
Judge Smith goes on to say, “I must assume, therefore, that the decision not to invest in bringing their irrigation systems up to speed was seriously careless at best. It was a systemic failure. It related to under-investment in irrigators, in pipelines, in hydrants and reticulation systems.”
Later, addressing permeate discharges, Judge Smith said it was a disappointment for the court, after four years, to still have staff failures as an explanation for a discharge. Partly because of the complexity of the reticulation system on site, staff were not aware where various products were going once they discharged through the sumps.
Judge Smith said he thought this issue was addressed in 2010 – but apparently then Fonterra reviewed only the central sump systems. An entire review of the discharging process was now occurring, he was told.
In general comment Judge Smith says although there is a disconnect between the irrigation offences and those from the plant, “they represent a decision, it seems to me, to prioritise productivity over the environmental consequences of discharge”.
The judge said he hoped he did not have to see Fonterra again in the court. But he said he thinks he said that last time.
