Consequences of Climate

22nd June 2011, 22:55
“Quakes, ash clouds, tornadoes, storms, but no snow” reads the NZ Herald headline just below the caption “Pippa & Harry’s dates”.
The record warm autumn has delayed the first falls on our ski fields disrupting travel plans of thousands of tourists to the southern season, A big disappointment to the young Aussie tourists who can enjoy a bumper exchange rate of $A0.76 to $NZ1.00 and a blight on our overseas earnings as tourists from Japan and the rest of Asia stay home.
This is all getting a bit much for many Kiwis, especially those effected by the Christchurch quakes as each aftershock further demoralizes them and yesterday’s headlines read;
Record Exodus to Oz- 3300 Kiwis flee in month as quake adds to rush.
Read of and hear on TV about the uncertainties regarding insurance, permission or otherwise for rebuilding in certain areas, loss of employment or threat of same and small businesses going to the wall because they cannot trade and you can well understand their disillusionment
I can well understand Donald McGhee’s sentiments after being on the quake site so long and he has a home to go to in the North Island

Rainfall, or too much of it, plus those other demons of nature, bush fires, floods, droughts, earthquakes or wind storms be they hurricanes, typhoons, cyclones or tornadoes and all related to their instigator ,the sun, have wreaked a lot of havoc in recent times.

These unwelcome intruders have caused death, misery and countless billions of dollars to economies around the globe and having lived in Brisbane and now in NZ I have been on the fringes of but unaffected by their damage yet I do feel at least an iota of the despair that the real victims are going through.

The only one that we cannot do without is rain and perhaps a zephyr or two of wind to move the heavens around a bit yet in spite of its enormous volumes at times it is a resource that is apparently dwindling as applied to the sustenance crops animals and humans.

In the same week of news the Herald published an article about NZ dairy processing giant ‘Fonterra’, a co-operative owned by dairy farmer shareholders who has been looking at the prospect of releasing some non voting shares on to the market in order to fund expansion capital and as a bit of titillation to investors they have released a few tit bits of information to twist the buyers arm so to speak.

They tell us Fonterra is the most efficient Dairy product processor in the world and the key reason for this is simply the NZ climate and an abundance of water that is great for growing grass which gives it distinct advantage over the rest of the world. Even being on perhaps the longest shipping route from Europe is taken in its stride
According to Water NZ we receive the same amount of water from the skies as that falling on the whole Australian continent, 28 times the area of NZ, each year, water that underpins us as a low cost of year round protein
Our rainfall average is 2.0 metres per year compared with the 0.8 metres world average and with food production being very water intensive it requires one litre of water to produce one calorie of food and 2000 t0 3000 litres to satisfy one westerner’s daily dietary needs.
This ability to provide ample pasture for grazing dairy cows and a climate that allows the animals to live out doors the year round gives us a strong advantage over other parts of the world that have to at least seasonally house and supplement their stock with various type of feed which is usually grain based and although a handful of NZ farmers use supplements other than seasonal hay and silage as much as 90% of the rest of the world’s dairy cows rely heavily on this at a consequence of cost added to by a rise in grain prices of 70% over the last twelve months.
Australia, parts of South America and South Africa operate on a similar model but NZ’s overall environment ices the cake.
Only last month Fonterra announced an increase in payout to the farmer share holders to $8.10 per kilo for milk protein which is a record.
Although one of the five biggest Dairy companies in the world it only produces 2% of world output but 98% of that is exported using 11 NZ ports and 140000 containers to deliver to customers in 140 countries.
Their self praise and statistics go on and on but they certainly seem to be onto a winner.
Would you buy shares in this Company?


Donald McGhee
23rd June 2011, 05:13
Wow! You've certainly done your homework Bob! As far as rain goes every weekend I go home it's bucketing with the stuff and I can't get a thing done around the section!
We do have our fair share of the stuff right enough and what with ash preventing us flying, ground moving preventing us standing and rain trying to drown us!!!!! I'll still stay here in NZ...... GODZONE!!

23rd June 2011, 07:26
Quote "Would you buy shares in this Company?"
My quick response is that I would probably buy some shares - nothing extravagant, maybe one hundred shares (I dunno in what type of lot this is being sold), something like $2,000 to $3,000 U.S. Dollars.

But a longer analysis is required. Will they pay any kind of "dividend"? If so, will it be quarterly, annually, or only when the Board of Directors decide they have enough cash reserves to do so? The cash payouts have to at least equal the interest rate you would get on that same amount deposited at your local bank.

Since this is most likely not traded on a stock exchange, there is really no liquidity for the "shares". In other words, you cannot sell at a moment's notice. Would the agreement specify how the coop repurchases shares? And how is the price determined if it is not publicly traded? Maybe strictly on the basis of the net assets, as published in an annual balance sheet for example.

I probably would also worry about the distance to markets; it could potentially become a factor. Let's also remember that many countries continually produce an excess of dairy products: France, Canada, the U.S. to name a few. Very often the price to the farmer is artificially maintained by government subsidies, or purchases - there are vast storehouses full of cheese and butter. It those were to be dumped on the international market, for whatever reason, prices would inevitably fall for all producers.

Finally, one overriding and always true maxim is that we should never invest more in the stock market (or private placement as this probably is) than we are prepared to lose.

My father was manager of agricultural co-operatives when I was a kid, so I feel pretty confident about them. But I also know how unpredictable markets are for any farm product. Even so, I am a gambler, and I would throw a little money at Fonterra, assuming I would get satisfactory answers to the questions mentioned above. Might be fun to follow.

But I don't think there is much money to be made by a non-farmer shareholder.

23rd June 2011, 08:32
LaFlamme, all you say is true but for many years this Company's shareholders have been critical of the Co-op set up and feel that listing as a public company would give them more latitude to exercise their assets as they wish but a majority of shareholders have seen the risk of an international take over if the liberalisation of the Co-op is to great.
It is NZ's biggest company earning 25% of our overseas earnings with assets totalling 14.1 billion,annual turnover 16 billion and exporting 2.31 million metric tonnes while employing 15600 people.It has only 10537 farmer shareholders so in a way it is a disproportional to the country's overall wealth and wider distrbution of shareholding would satisfy many Kiwis anyway.
My question about buying shares, the details of which are yet to be announced, was a rhetorical one and yes if I get a chance I will take a very little stake.
We know that the rules of supply demand and wealth can swing either way but we have been long aware of the protective European subsidies that support the European farmer and this has long been a bone of contension with us since Britain dumped NZ and joined the common market but thanks to cooperative enterprise, a bountiful rainfall and climate and not one iota of government subsidy we can still produce, process and ship to the other side of the world dairy products that need to have duty tarrifs imposed on arrival in the Northern Hemisphere to stop under cutting of Europe's heavily susidised product.
That is why many non farmer NZ'ers would like a bit of the action