Federated Farmers Dairy chairman, Lachlan McKenzie, gives opening address to FFNZ Dairy Council meeting
Since being elected as chairman in June 2008, it has been a very busy and turbulent time.
As a new chairman, with a fresh executive, we asked this fundamental question in reviewing Federated Farmers Dairy strategy, what was it we wanted to achieve over the next three years?
The details will be given later in your conference but the key message to emerge is this. We are the only independent advocates for dairy farmers in New Zealand. We are not beholden by money, by connection or by self-advancement. We act for dairy farmers.
Federated Farmers Dairy is the only body that consistently stands up for:
· dairy farmers property rights and the right to farm against a powerful environmental lobby
· tackling compliance costs head-on; from local councils to central Government, whether it is local rates or secondary containment for diesel tanks, and
· challenging our industry’s leaders when required. If our members lose confidence in a process and want a review, we ask for it, as we have done over Fonterra’s global dairy trade.
Federated Farmers benefits from a national team of policy advisers. They advise from bylaws to international treaties. It is the biggest policy team outside of Government. These experts provide the analysis and support to us, the elected office holders. I take this opportunity to thank the team at feds for the work and support they give all elected representatives.
Federated Farmers core strength is still the fact that farmers speak for farmers. Elected farmers front the politicians and the bureaucrats we deal with daily. Farmers are the only ones with skin in the game, when we front up we are passionate and have conviction about the outcome we want.
Collectively, we are a strong advocate group like no other in New Zealand. I remind other organisations in our industry for the very reasons I have mentioned. They cannot pretend to represent the interests of dairy farmers nor should they try. They are hamstrung by the fact they cannot tread too heavily or that they might upset the sensibilities of other lobby groups. Only a membership based body can. We proved this with the FART tax and in winning amendments to the RMA and a fundamental review of the ETS with the new Government. Need I remind you that Federated Farmers was the only body to spot a $200 million overstatement in benefits for NAIT? Like it or loathe it, you must agree this needed a new look and the Government listened to us. Yet, by working together towards a common purpose, our different roles and functions come together like instruments in an orchestra. We are the dairy industry.
Federated Farmers Dairy has been effective in the past but must remain ever vigilant to ensure dairy farming in New Zealand remains sustainable. We do this by ensuring profitability and productivity is not eroded.
Six months ago, the dairy industry was in a state of euphoria with payouts in the high $7s to $8, with banks and economists talking $9 to $10. I was not so sure. In March 2008, I returned from an overseas Food and Agribusiness Marketing Experience study tour. I made the public statement that if the dairy farm payout had changed from averaging $ 4.60 over the last decade, to averaging $5.50 for the next, then the volatility will increase from around $1 to $2 either side of the mean. That translates into a range from $7.50 right down to $3.50. I was close with the $7.50 and now the payout forecasts range from the mid $3 to the mid $4s. The long term mean is still up one dollar. I hope I am right with the mean prediction, but I should point out that this is not financial advice but my observations.
Six months ago banks were phoning dairy farmers asking if they wanted more money, saying your equity is so high, you can leverage off it to get that extra farm. The only calls today are asking for farm budgets or for more equity to be put into the business. Banks do provide a necessary service to our industry. We cannot farm without them, yet I am disappointed at the behaviour of some banks. In December 2007, banks would not advance funds to farmers for farm conversions to start building until they had secured a herd. This drove up the price of cows for no just reason. There was no significant shortage of cows to milk in the spring of 2008. Now, in early 2009, the banks will not give assurances to sharemilkers so they can buy cows. Cow sales have stopped due to the lack of credit facilities and it is driving cow prices down unnecessarily. Farmers must continue to trade. The fundamentals of dairying are as good today as at any time in the last decade, excepting last year. I ask the banks to come and talk to us to work through these issues.
The structure of the dairy Industry
Our industry has been built on the co-operative philosophy. There are huge benefits in belonging to a co-op as well as responsibilities. These benefits are to be covered during one of our conference sessions. I pose this question. Why is 85% of the world’s milk production sold through co-ops? Surely 85% of farmers have not got it wrong. The dairy industry has to unite again under the co-operative philosophy to get confidence and strength back into our industry.
Shortly after Fonterra was formed, a small dedicated group developed a document that laid out the core principles and philosophies of Fonterra as a co-operative, subsequently adopted by the members of Fonterra. In these turbulent times, it is important that we remind ourselves of the corner stone philosophies of a co-operative. The core principles have stood the test of time.
I use the analogy of a good sports team. A good team is one that can be down at half time but pick it self up and win. At half time a good coach (the leader) refocuses the team. That person gets the team to believe in their own abilities, focus on their strengths, minimise the mistakes and work as a team. How often have you seen a team come out after half time and play like a different team and go on to win?
Dairying is a winning team. We are at half time. We scored the first points last year with a high payout but the opposition has come back hard with talk of recession and gloom and doom.
Right now we need strong inspirational leadership that inspires farmers with vision and a clear strategy to move forward over the next 3 to 4 years and then the next 20. We have to focus on our strengths, work together as a team, manage and minimise our weaknesses.
A few comments on dairy companies
Through our surveys, Federated Farmers members tell us that the ownership of their co-ops is very important to them, but they are relaxed about having alternative share structures. Our members tell us they have not bought into the vision of Fonterra or the benefits of the strategy. It is time for Fonterra to come clean, stop the waffle and spin.
Fonterra has to work out, what the collective vision is that its farmers aspire too? The leadership has to take farmer members with them. They cannot force their ideas onto the majority. Focusing on the negative, such as redemption risk and capital requirements will not get the passion back into the bellies of its members. In times of hardship nothing ensures loyalty more than good performance. Cash is king and always will be.
We must not forget our fellow farmers supplying Westland co-op. We do have empathy in these hard times and implore the Westland directors to fully disclose to their shareholders, the reasons for the change in fortunes. From hero to zero in six months is not good. Your Federation, through our West Coast dairy chairman, is working to get a degree of openness from Westland’s Board, which has been meeting over the past few days. I look forward to talking face to face with them and Katie.
Dairying in New Zealand has changed over the years and will continue to change. It has been successful and will refocus and continue to be successful.
As if we didn’t have enough financial issues to deal with, Regional Councils still seem hell bent on regulations to control what they see as the ‘evils’ of a successful dairy industry. Federated Farmers will continue to advocate for rational thinking in this debate and where necessary, litigate. There is a trend towards Regional Councils demanding that farmers have to have resource consents to farm. This gives consent officials at regional councils the right to stipulate the conditions, processes and rules that farmers have to abide by for the duration of the consent. Here is the rub. A lot of the people giving the consent have no knowledge or comprehension of farming systems or the consequences of changing part of a system. New Zealand dairy farmers are experts at understanding and managing complex biological systems. We call it a farm.
We do this every day, yet Regional Councils refuse to acknowledge this fact. Regional Councils do not have the skilled people with knowledge of farm systems to write these rules, let alone to process these consents and get a sensible outcome. How they will ever be able to audit the consent once they are granted is beyond me, as many currently struggle with simple effective monitoring. In theory, these concepts look good but we need a big dose of reality to prevent the situation from sliding into absurdity.
There are case law examples under the RMA that show farmers can have the reasonable expectation of carrying out normal farming activities.
We all want sustainable development in our regions, which results in economic growth, social justice as well as environmental protection. Federated Farmers is demanding that Regional Councils have regard to all four pillars (economic, social, environmental, cultural) in the RMA, not just environmentalism. We will not stand by when the likes of Waikato Regional Council’s Variation 6 removes the right to dairy farm economically in the Waikato catchment, by giving Mighty River Power priority to heat the towel rails up in Auckland.
Waikato Regional Council is responsible for economic development within the region, yet it is taking away from locals and giving it to an SOE. We have to ask what motivation lies behind the decision and where is the social justice in these decisions?
As we all know, the economic landscape has changed. The only way New Zealand is going to get out of this recession is to trade its way out. Agriculture and particularly dairying, is well placed to make a major contribution.
Yet it is being handicapped by some current legislation, which makes it difficult for dairying to fulfil its potential. I ask our Government to address some serious impediments to New Zealand’s prosperity. The RMA has to be reformed to reduce costs and ensure rules are not implemented that restrict productivity without achieving the environmental, social or economic goals we all desire. The Government needs to change the rules that Regional Councils work with and insist they focus on the economic wellbeing of the entire community.
This Government has to stop the creep of ridiculous new taxes and the taking of private property rights. Ironically, the fight against ridiculous taxes, or FART, may have given birth to the likes of NAIT and the ETS, if they are not substantially changed.
The Government has to increase the protection of private property rights. New Zealand has one of the weakest protections of these rights in the OECD and has a history of confiscating these property rights, Maori and Pakeha alike.
This issue limits investment in our productive sectors and requires huge expenditure on lobbying Government to try and protect our rights. Federated Farmers spends about half its budget, farmers’ money, on protecting your rights. Waikato’s Variation 6 and Manawatu’s One Plan are both examples of schemes that may take away your right to produce food on your land. New Zealand’s prosperity will improve when the Government moves to protect private property rights for all New Zealanders.
Finally, the dairy industry is a good industry to be involved in. It could be a great industry and drive New Zealand out of recession with a few basic changes.