How did they get it so wrong?

Fonterra did not have the best of weeks with another drop in payout and highly critical WPC report

Fonterra did not have the best of weeks with another drop in payout and highly critical WPC report

 

WITHOUT DOUBT last week was a bad one for Fonterra and its shareholders.

The cooperative, New Zealand’s largest company, was savaged by an independent inquiry into the handling of its infamous WPC80 false botulism scare last year.

In its 103-page report, the inquiry team, led by Miriam Dean, QC, confirmed what most people knew from August 2, 2014 – Fonterra’s response to the WPC80 case was woeful at best.

Also, last week the co-op’s directors announced a 60c/kgMS drop in this season’s forecast payout to its 10,500 farmers.

Normally, what 10,500 farmers get paid for their milk is irrelevant to townies. The 60c drop means a $6 billion reduction in potential earnings from the dairy industry this season, compared to last season’s record $8.30/kgMS payout; huge implications for the national economy.

So, how did Fonterra find itself on the ropes last week?

No one can point the finger at the co-op for the millions of litres of extra milk produced by happy farmers in the US and the EU. The extra milk is suppressing global milk prices. The question Fonterra farmers will ask is why the co-op’s management and board did not see the warning signs earlier.

The season started with an opening forecast payout of $7/kgMS, announced in May this year; slashing $2.30/kgMS from the payout within six months raises serious questions about the co-op’s forecasting ability.

The co-op says farmers expected and understand the sharp drop in prices; the writing has been on the wall for some time, but did Fonterra have to take its farmers on a roller coaster milk price ride this season?

The co-op says it will trim costs and defer capital expenditure, where possible, to generate more cash for farmers. Will it now defer major investment in global milk pools – championed by chief executive Theo Spierings – and touted as being crucial to Fonterra’s future? Short term payout pain for long term milk volume gain may not be every Fonterra farmer’s cup of tea.

What is most important to Fonterra’s future as a global player is getting its food safety credentials right.

The co-op says at the time of the recall of WPC80, it did “what was right based on the evidence we had”; Fonterra could use the same excuse for explaining how it got this season’s forecast payout so wrong.

However, the WPC80 inquiry report finds its response was far from satisfactory. Many farmers would come to the same conclusion as they milk cows over the festive season and rue the $6 billion they will never see.

A bad joke

agrikids1YOU KNOW there is something seriously wrong with the priorities in the country’s education system when we have only 100 agricultural science graduates – compared with 120 in acupuncture – in one year.

If this wasn’t so serious it would be a joke.

Ministry of Education data tell us that of the 25,000 domestic bachelor graduates in 2013, only 350 graduated in a primary sector-related discipline. Too few high-achieving school leavers take agriculture-related studies at bachelor degree level.

As a rural-economy nation, our primary sector should be the natural place for our best and brightest people. As Associate Primary Industries Minister Jo Goodhew recently said: “We need to do more to encourage and promote the sector as an attractive and fulfilling career option for our talented young people.”

The head of Massey University’s Institute of Agriculture and Environment, Professor Peter Kemp, believes rightly that careers advisors had better be told to think it out again, i.e. cease encouraging only less ‘able’ students towards the industry, and instead change the narrative to ‘only if you are bright enough is a career in agribusiness for you’.

Channelling bright, young people towards a career in the wider, primary sector is vital to our nation’s future. Currently there are 350,000 people employed in New Zealand’s primary sector, and by 2025 this number will be closer to 400,000.

To get anywhere near achieving the Government’s goal of doubling exports by 2025, the primary industry must have the right people with the right skills. Only the best and brightest will do.

Goodhew and Kemp agree the industry’s message must emphasise that ‘doing agriculture’ doesn’t mean just farming. There’s also banking, marketing, advisory, engineering and food, to name a few. Agricultural science, farm management and agribusiness are all key fields in the primary sector.

Promotion of primary sector industry has to start in our schools – the younger the better. Goodhew is 100% right when she says: “If we want to attract talented, young people into the primary sector we need to make them, and their parents, aware of the opportunities (and salaries!) available there.”