Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The Northland farmer believes this one of the positive consequences of the current crisis.
"Our comparative advantage in the world is grass, and not all dairy farmers moved away from that," he told Dairy News at the opening of Shanghai Pengxin's Central North Island Dairy Academy in Taupo last week.
"There was quite a chunk of farmers who've stayed with that straightforward farming system. Moving back to greater use of grass and less reliance on supplements will make for a stronger industry," he says.
Gent says in the days when New Zealand was getting $US5000 a tonne for milk powder any farm system could work and make money.
But the fallout from the price downturn is now showing, and as a result farmers will probably take a different view of risk management; they will look at how they handle risk and maybe build more resilience into their businesses -- a positive consequence.
One concern raised by banks over the years has been the lack of financial literacy of some farmers, but Gent says risk management is a bigger issue.
"You can blame all sorts of things. You can equally say that banks have had a fairly short corporate memory. I would translate financial literacy more as risk management... and if I saw a weakness it would be that," he says.
Farmers will in time take greater ownership of their budgets, instead of these being largely owned by the banks Gent says. Farmers will get into developing various scenarios and planning for these.
Another former Fonterra director, Colin Armer, says clearer market signals from Fonterra would have been useful for farmers trying to manage through the present difficult times. While the low dairy prices can't be blamed on Fonterra, clearer signals would have helped.
Armer says restoring profitability to the industry requires a move back to basics -- volumes of production coming off farms and the cost of production.
"There will have to be a reset and some costs taken out of the business. We don't know how long this oversupply situation will last, but in the meantime people can't go on banking losses."
Armer says the present crisis arose from many factors including the Chinese market going off the boil, increased dairy production in Europe and US and trade bans imposed by Russia.
