Fonterra mulls options - sale or IPO
An outright sale of Fonterra’s global consumer business is more likely than a float, says Forsyth Barr senior analyst equities, Matt Montgomerie.
This comes on the back of Fonterra latest forecast Farmgate Milk Price for 2015-p16, which fallen to $3.85/kgMS.
Federated Farmers dairy spokesperson Andrew Hoggard says small-scale rural service industries, such as engineering or contracting, in some instances might be hit harder than the dairy farmers they traditionally rely on for work.
“When dairy prices go back up, as invariably they will, then the dairy supply and service industries need to be ready and skilled to get back on to the farms to make up for lost time. Or, at least, people will have had other employment in the district and haven’t permanently left for somewhere else.”
“The Government needs to set some priorities over the next year, where it can find valid work for these supply companies.”
Hoggard identifies irrigation projects, rural roads and broadband rollout as obvious examples.
“Then there is the promise made by the Government before the last election. That it would provide $100 million over ten years for planting riparian strips. We could compress that into three to five years.”
“This sort of infrastructure work is going to be done anyway. A little bit of tweaking of Government priorities for where and what type of work to fast-track could make the world of difference to some rural communities with a high exposure to the dairy industry,” he says.
Waikato Federated Farmers president Chris Lewis says some dairy farmers are concerned about an impending El Nino this coming summer, but the consequences are not all that straightforward.
“When the dairy regions in New Zealand get dry then our overseas customers get concerned that worldwide supplies will ease back. They already know New Zealand dairy production will fall this summer for the first time in years. As we’ve seen a number of times in the past, this puts upwards pressure on prices,” Lewis says.
Hoggard says farmers must be in contact with their bankers and advisers.
“Farmers should still be budgeting conservatively in the short term. We should all remember though that there are two critical things here. First, is that the medium to long-term outlook for our dairy exports into Asia is very positive. The second thing is that the banks realise this, and work through their lending to farmers, will be in the best position to capitalise on this future growth.”
