Fonterra's opportunities, risks
At Fonterra's recent annual meeting in New Plymouth, chair Peter McBride spoke on the co-op's changing global operating context and how to manage risk. Here's some of what he said.
"The $4.25/ kgMS is not a surprise, although the particularly low opening advance rate of $2.50/ kgMS plus capacity adjustment is tough for farmers who will find the winter particularly difficult," says DairyNZ chief executive, Tim Mackle. "This is the lowest opening advance rate in at least the last 14 years.
"The break-even milk income required for the average farmer is $5.25/kgMS, yet under this forecast scenario they'll only be receiving $4.45/kgMS all up in terms of farm income, including retro payments from last season and dividends.
"We will see continued pressure for farmers to manage cashflows for the first six months of the 2016-17 season which will, for many, lead to further increases in debt to get their businesses through another low milk price season," says Mackle.
Dairy cash incomes (from milk and livestock) at the announced milk price are expected to be 10-15% higher than last season. However, it will be challenging for many farmers to reduce farm working expenses further and interest expenses will be higher from increased borrowings over the last two seasons.
"DairyNZ has already boosted its Tactics campaign to help farmers cope. We're providing advice and wrap-around support for our farmers to help them with all the decisions they will have to make," says Mackle.
"Ultimately this could make us more competitive if we use it to drive efficiency throughout our businesses. Many of our farmers have been coping with low milk prices for the past few seasons, so this isn't new for a lot of people.
"We'll particularly need to continue our support for those farmers who have just bought farms or who are first year sharemilkers, as they will have more debt to manage. Lower order sharemilkers are also under immense pressure as they have little wriggle room."
DairyNZ has now visited over 1400 farms as part of its Tactics programme to ensure dairy farmers are aware of and have access to the right support based on their individual circumstances.
"It's been through these visits, and many more over the coming months, that we come across farmers who are going the extra mile to help each other out," says Mackle.
"We have Tactics host farmers who are 'farmers helping farmers' and sharing information to help each other get through. At our recent Farmers' Forum, three farmers shared their learnings on the key ingredients to operate a farm at $3 per kgMS and how they have set up their systems to run at a consistently low farm working expenses level.
"We also have 420 Dairy Connect farmers who are acting as short-term mentors and we are offering workshops on getting the best use out of pasture," he says.
"We will continue to work with our farmers to share tips and tactics around the regions on getting through a low milk price cycle. While we are in challenging times, the majority of dairy farmers are resolute and are remaining as positive as they can."
