NZ DAIRY INDUSTRY Tony Baldwin Independent Adviser Honeymoon Bay Motueka 2003 INTERLACT NUTRITION...
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Transcript of NZ DAIRY INDUSTRY Tony Baldwin Independent Adviser Honeymoon Bay Motueka 2003 INTERLACT NUTRITION...
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NZ DAIRY INDUSTRYTony BaldwinIndependent AdviserHoneymoon BayMotueka2003 INTERLACT NUTRITION CONFERENCE 9 June 2003
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Why Ive taken an interest? No strong ideological bentLack of intellectual honestyPoor processWould like to see it do wellWeak leadershipVery poor monitoring (out of view)Impact on allocation of resources in economy
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Some experience and expertiseOld fashioned sense of public dutyNote I am only presenting publicly available information
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OUTLINEPart 1: OriginsPart 2: Mega MergerPart 3: Change
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PART 1: ORIGINS
Cultural roots
Approach to marketing
Strategy + outcomes of first 125 years
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CULTURAL ROOTS
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Know the past if you would divine the future
Confucius
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Primitive....unhygienic.....tiring....boring. Milking cows was hard...
David Yerex, Empire of the Dairy Farmer. For many years, Mr Yerex was the editor of the industrys publication The Dairy Exporter
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Cheek by jowl, almost all poor....
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Enduring serious hardships, including anthrax (which is, of course, topical given recent international terrorist threats)
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....Early dairy farmers all had the same ambition to achieve a decent life for their families. They all came from much the same class in Britain. All shared the same hatred of the worst features of English class society. David Yerex, Empire of the Dairy Farmers
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Like gold prospectors of the era, dairy farmers shared a dream that milk production would deliver independence and prosperity.As Arthur Ward: No industry involved in the production of food would ever fail in a hungry world.Dairy farmers dreams were best summed up by William Bowron, the Governments Chief Dairy Expert, in his report to Parliament in 1894:
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The untold enduring wealth of NZ lies upon the surface............
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....and the cow is the first factor in the way of securing it.....
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......We have only to make the prime article in butter and cheese, then no power on earth can stay the flow of white gold in this direction."
Government Dairy InspectorsWilliam Bowron Chief Dairy Expert for the Government, 1894
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NZ DAIRY BOARD, 6 APRIL 2001Milksolids are the white gold left for export processing.......and the Dairy Board sells it all..... Neville MartinWAIKATO TIMES, 11 OCT 1997As Waikato's white gold builds to a record flush, milk tankers work around the clock to collect it from over 6000 farmers..THE PRESS, 14 OCT 2000The great silver trucks glide up and down Ashburton's West Street, and then spread out to the plains of Mid Canterbury to fill their bellies with white gold. THE SOUTHLAND TIMES, 21 JUN 2001White gold flows on down in Southland dairy sheds
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Dairy farmers developed a suspicion of city and urban interests...were seeking more than a fair share of his hard-won livelihood. Arthur Ward, A Command of Co-operativesFarmers were particularly suspicious, without good reason, that Tooley St merchants (UK importers) were screwing them.
These outside interests included virtually everyone beyond the farm gate: processors, quality controllers, wholesalers, distributors, merchants, advertising agents, bureaucrats, retailers, financiers and tax gatherers. David Yerex
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Dairy farmers would congregate for hours and reinforce each others prejudices Gordon McLaughlan, Illustrated History of NZ Agriculture
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Unity among farmers emerged from their shared distrust of outsiders David YerexChew Chong, Taranaki
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Dairy farmers came to believe - and it was an article of faith - that they secured more of the selling price of their produce by the cooperative method Arthur Ward, A Command of Co-operatives After a slow start, the concept of the cooperative dairy company spread like a faith an extension of the small-holders desire for as tight a mastery as possible over his destiny Gordon McLaughlan, An Illustrated History of NZ Agriculture
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It is a strange paradox, then, to find the industry was largely created by the Government. And for 100 years, whenever problems arose, the industry always turned to the Government. The industrys culture is driven by a fierce determination among farmers to be free men
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Culture and values of pioneering days are strong influences in the modern era. Arthur Ward, Gordon McLaughlan, David Yerex:
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MARKETING
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The essence of any business is to capture value from customersHow did the industry organised itself to manage marketing risks and opportunities? What are the key risks and opportunities?Broadly, the same as any export marketing business.
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ConsumersProducersWhat are customers willing to pay ?Can I get a margin to cover my full costs?What if demand drops?Risk of over-supply ? How to hedge risks? Exchange rate?Best presentation? Post-sales service? Best logistics ? What are my competitors doing? Customers demands. Signals of value should guide producersNORMAL EXPORT MARKETING RISKSTrade access?QA?
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ConsumersProducersThe responsibility of selecting a suitable marketing medium...was laid upon the bodies of farmers, who while mostly good farmers, were in no position to judge the markets or marketing organisation.
Mr PottingerDirector of State Marketing Dept, thenNZ Dairy Products Marketing Commission
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ConsumersProducers1914-21Imperial Commandeer1914 1930sGovt Board of Agriculture1895 1921Govt Dairy Commissioner1900 1921London Office for National Dairy AssociationValue signals blunted
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ConsumersProducers1923 62 Dairy-produce Board of Control [Renamed NZ Dairy Board in 1935]1936 47State Marketing Department1934 Royal Commission into the Dairy Industry1935 - 47Executive Commission of Agriculture1922 (date)Dairy Council Value signals blunted
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ConsumersProducers1947 62Dairy Products Marketing Commission1942 (date)Reserve Bank Dairy Stabilisation Account 1942 (date)Dairy Industry Cost Adjustment Committee1950s (date)Dairy Industry Price Fixing Authority1953 (date)Milk Powder CouncilValue signals blunted
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ConsumersProducers1962 2002Dairy Products Control + Marketing Board[Renamed NZ Dairy Board]1956 (date)Dairy Industry Loans Council1955 Govt Committee of Inquiry into the Dairy IndustryValue signals blunted
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Diagrammatically..
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FarmersDairy companiesNational Dairy Association (shipping)Tooley St ImportersConsumersWholesale + retail1890 1914Open ExportsSignals of customer valueExport contractswith individualCo-ops
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FarmersDairy companiesNational Dairy Association (shipping)Tooley St ImportersConsumersWholesale + retail1914 1922Single DeskImperial Commandeer NZ Govt Purchased for UK GovtPrice LobbyingSignals blunted
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FarmersDairy companiesNational Dairy Association Limited
Tooley St ImportersConsumersWholesale + retail1922 25Open ExportsSignals of customer valueExport contractswith individualCo-opsDairy-produce Board of Control Shipping, administration + politics
-
FarmersDairy companiesNational Dairy Association
Tooley St ImportersConsumersWholesale + retail1926Single DeskBlunted(politics)Dairy-produce Board of Control
Dairy-produceBoard of Control
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FarmersDairy companiesConsumersWholesale + retail1927 GoodfellowsProposal
Amalgamated DairiesEmpire DairiesSelected TradersVoluntary shareholdingSignals of customer value
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FarmersDairy companiesNational Dairy Association
Tooley St ImportersConsumersWholesale + retail1927 34Open ExportsSignals of customer valueExport contractswith individualCo-opsDairy Board of Control Shipping, administration + politics
Dairy-produce Board of Control
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FarmersDairy companiesNational Dairy Association Tooley St ImportersConsumersWholesale + retail1934 46Single Desk
Govt Marketing Department
Price CommitteesSignals bluntedExecutive Commission of AgricultureDairy-produce Board of Control
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GOVERNMENT GUARANTEED PRICE SCHEMESet prices that assure an efficient farmer of a sufficient net return to enable him to maintain himself and his family in a reasonable state of comfort." From the relevant legislation
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FarmersDairy companiesNational Dairy Association Tooley St ImportersConsumersWholesale + retail1946 - 62Single Desk
Dairy Products Marketing Commission
Dairy Price Fixing AuthoritySignals bluntedDairy-produce Control BoardGovt Stabilisation AccountDairy Loans CouncilMilk Powder Council1940 - 57UK Bulk PurchaseEmpire Dairies (1953)
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FarmersDairy companiesNational Dairy Association Tooley St ImportersConsumersWholesale + retail1962 1980sSingle DeskDairy Products Marketing Commission
Dairy Price Fixing AuthoritySignals bluntedDairy-produce Control BoardGovt Stabilisation AccountDairy Loans CouncilMilk Powder Council
-
FarmersDairy companiesSelected Traders ConsumersWholesale + retail1980s 2002Single Desk
Dairy Board
Signals BluntedOverseas Operations
-
FarmersSelected Traders ConsumersWholesale + retail2002 Fonterra
Signals bluntedDairy CompaniesFonterra
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FarmersDairy companiesConsumersWholesale + retail1927 GoodfellowsProposal
Amalgamated DairiesVoluntary shareholdingSignals of customer valueSelected Traders
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82%
Periods of Open Exporting
13831768
1914 - 22
1926
1927 - 34
1935 - 2002
1922 - 25
1900 - 14
Periods of Open Exporting
Sheet1
00-1312345
14-222
22-251
262
27-341
34 - 2022
2377
13831768
123456
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
-
STRATEGY + OUTCOMES OF FIRST 125 YEARS
-
Real Milk Payouts
829.2682926829
800
820
811.320754717
781.8181818182
736.8421052632
741.3793103448
655.737704918
629.0322580645
621.2121212121
590.9090909091
597.0149253731
565.2173913043
585.7142857143
638.8888888889
613.3333333333
597.4025974026
575
482.3529411765
460.6741573034
440.8602150538
480.3921568627
576.5765765766
542.3728813559
589.1472868217
513.698630137
488.2352941176
443.8775510204
437.5
415.3225806452
419.2439862543
452.380952381
500
478.4580498866
454.347826087
453.3073929961
392.1232876712
298.0910425844
311.5845539281
417.3027989822
425.8600237248
275.3128555176
375.2808988764
406.6666666667
364.0350877193
360.9341825902
412.6163391934
368.154158215
342.6853707415
357.2854291417
373.8872403561
481.5847067434
498.7471952403
Real Milk Payouts
Trend line
1950 - 2002
c/kg of milk solids
Return on Milk Inflation-Adjusted
Sheet1
Industry Average Dairy Payouts
SeasonRealCPI = base June 1999Nominal
195082934
195180036
195282041
195381143
195478243
195573742
195674143
195765640
195862939
195962141
196059139
196159740
196256539
196358641
196463946
196561346
196659746
196757546
196848241
196946141
197044141
197148049
197257764
197354264
197458976
197551475
197648883
197744487
197843898
1979415103
1980419122
1981452152
1982500195
1983478211
1984454209
1985453233
1986392229
1987298203
1988312234
1989417328
1990426359
1991275242
1992375334
1993407366
1994364332
1995361340
1996413399
1997368363
1998343342
1999357358
2000374378
2001482501
2002499532
Sheet2
Sheet3
Sheet4
Sheet5
-
StrategyBoost production
Lower costs
This was the principal focus for MAF (dairy division) until quite recently. Other measures included cheap govt loans, opening up Crown land for dairying, govt research funding and institutes, govt dairy advisers and govt prizes for achieving certain export targetsAs above, but key factors were govt funded research and development, plus govt instructors and field advisers.
-
Strategy (contd)Single exporterMinimise internal competition
Legislating co-ops, single desk selling, price fixing and smoothing, grading and quality controls and new product development.Many examples, including empowering the Board to zone milk collection areas to eliminate pernicious inter-factory competition.
-
Number of cows (1895 - 1971)
257140
372416
633733
890220
1499532
1799603
1898197
1997819
2361599
Number of cows
Number of Cows (1895 - 1971)
Number of Cows (1974 - 2002)
2079886
2280273
2830977
3485883
Number of cows
Number of cows (1974 - 2002)
Production (1901 - 1971)
202000104000
302000439000
8980001369000
19890001636000
22630002366000
19490002132000
33010001752000
38280001824000
Butter
Cheese
Hundred weights
Production
Production (1976 - 2001)
479
524
788
1046
Kg Milk Solids
Production (1976 - 2001)
Cow Productivity
250.25
229.25
248.5
264.25
257.25
252
250.25
269.5
269.5
274.75
241.5
269.5
250.25
257.25
259
274.75
259
278
271
283
301
292
256
288
310
&A
Page &P
KgMS per cow
1976 - 2001
KG Milksolids
Cow Productivity
Sheet1
Notes for Tony Baldwin's Speech @ Dairy Conference 2003
YearNumber of cows
1895257,140
1901372,416
1911633,733
1921890,220
19311,499,532
19411,799,603
19511,898,197
19611,997,819
19712,361,599
YearButter produced (Cwts)Cheese Produced (Cwts)
1901202,000104,000
1911302,000439,000
1921898,0001,369,000
19311,989,0001,636,000
19412,263,0002,366,000
19511,949,0002,132,000
19613,301,0001,752,000
19713,828,0001,824,000
(Agriultural and Pastoral Statistics of New Zealand 1861-1954. Department of Statistics, New Zealand 1956)
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cowNational KgMS (000,000)
74/752,079,88618,540112not available224425
75/762,091,95018,442115not available240466
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cow*National KgMS (000,000)
76/772,074,44317,924117not available250479
77/782,052,62417,363120not available229437
78/792,039,90216,907123not available249477
79/802,045,80816,506126not available264506
80/812,027,09616,089129not available257491
81/822,060,89815,82113363252491
82/832,128,19915,81613764250505
83/842,209,72515,93214065270564
84/852,280,27315,88114664270578
85/862,321,01215,75315064275609
86/872,281,84915,31515165242524
87/882,236,29014,81815365270579
88/892,269,07314,74415766250541
89/902,313,82214,59515967257572
90/912,404,14514,68516470259599
91/922,438,64114,452169not available275637
92/932,603,04914,45818074259651
93/942,736,45214,59718877278736
94/952,830,97714,64919380271733
95/962,935,75914,73619982283788
96/973,064,52314,74120886301880
97/983,222,59114,67322087292891
98/993,289,31914,36222991256850
99/003,269,36213,86123693288970
00/013,485,88313,892251963101046
(Livestock Improvement Corporation Limited Dairy Statistics 2000-2001)
Additional Information Requested for speech notes
** Approximately 12-14KgDM are required to produce 1KgMS.This will vary depending on the cows production efficiency and the time
of the year (I.e. the nutritive value of the feed).
Sheet2
Sheet3
-
Number of cows (1895 - 1971)
257140
372416
633733
890220
1499532
1799603
1898197
1997819
2361599
Number of cows
Number of Cows (1895 - 1971)
Number of Cows (1974 - 2002)
2079886
2280273
2830977
3485883
Number of cows
Number of Cows (1974 - 2002)
Production (1901 - 1971)
202000104000
302000439000
8980001369000
19890001636000
22630002366000
19490002132000
33010001752000
38280001824000
Butter
Cheese
Hundred weights
Production
Production (1976 - 2001)
479
524
788
1046
Kg Milk Solids
Production (1976 - 2001)
Cow Productivity
250.25
229.25
248.5
264.25
257.25
252
250.25
269.5
269.5
274.75
241.5
269.5
250.25
257.25
259
274.75
259
278
271
283
301
292
256
288
310
&A
Page &P
KgMS per cow
1976 - 2001
KG Milksolids
Cow Productivity
Sheet1
Notes for Tony Baldwin's Speech @ Dairy Conference 2003
YearNumber of cows
1895257,140
1901372,416
1911633,733
1921890,220
19311,499,532
19411,799,603
19511,898,197
19611,997,819
19712,361,599
YearButter produced (Cwts)Cheese Produced (Cwts)
1901202,000104,000
1911302,000439,000
1921898,0001,369,000
19311,989,0001,636,000
19412,263,0002,366,000
19511,949,0002,132,000
19613,301,0001,752,000
19713,828,0001,824,000
(Agriultural and Pastoral Statistics of New Zealand 1861-1954. Department of Statistics, New Zealand 1956)
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cowNational KgMS (000,000)
74/752,079,88618,540112not available224425
75/762,091,95018,442115not available240466
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cow*National KgMS (000,000)
76/772,074,44317,924117not available250479
77/782,052,62417,363120not available229437
78/792,039,90216,907123not available249477
79/802,045,80816,506126not available264506
80/812,027,09616,089129not available257491
81/822,060,89815,82113363252491
82/832,128,19915,81613764250505
83/842,209,72515,93214065270564
84/852,280,27315,88114664270578
85/862,321,01215,75315064275609
86/872,281,84915,31515165242524
87/882,236,29014,81815365270579
88/892,269,07314,74415766250541
89/902,313,82214,59515967257572
90/912,404,14514,68516470259599
91/922,438,64114,452169not available275637
92/932,603,04914,45818074259651
93/942,736,45214,59718877278736
94/952,830,97714,64919380271733
95/962,935,75914,73619982283788
96/973,064,52314,74120886301880
97/983,222,59114,67322087292891
98/993,289,31914,36222991256850
99/003,269,36213,86123693288970
00/013,485,88313,892251963101046
(Livestock Improvement Corporation Limited Dairy Statistics 2000-2001)
Additional Information Requested for speech notes
** Approximately 12-14KgDM are required to produce 1KgMS.This will vary depending on the cows production efficiency and the time
of the year (I.e. the nutritive value of the feed).
Sheet2
Sheet3
-
Number of cows (1895 - 1971)
257140
372416
633733
890220
1499532
1799603
1898197
1997819
2361599
Number of cows
Number of Cows (1895 - 1971)
Number of Cows (1974 - 2002)
2079886
2280273
2830977
3485883
Number of cows
Number of cows (1974 - 2002)
Production (1901 - 1971)
202000104000
302000439000
8980001369000
19890001636000
22630002366000
19490002132000
33010001752000
38280001824000
Butter
Cheese
Hundred weights
Production (1901 - 1971)
Production (1976 - 2001)
479
524
788
1046
Kg Milk Solids
Production (1976 - 2001)
Cow Productivity
250.25
229.25
248.5
264.25
257.25
252
250.25
269.5
269.5
274.75
241.5
269.5
250.25
257.25
259
274.75
259
278
271
283
301
292
256
288
310
&A
Page &P
KgMS per cow
1976 - 2001
KG Milksolids
Cow Productivity
Sheet1
Notes for Tony Baldwin's Speech @ Dairy Conference 2003
YearNumber of cows
1895257,140
1901372,416
1911633,733
1921890,220
19311,499,532
19411,799,603
19511,898,197
19611,997,819
19712,361,599
YearButter produced (Cwts)Cheese Produced (Cwts)
1901202,000104,000
1911302,000439,000
1921898,0001,369,000
19311,989,0001,636,000
19412,263,0002,366,000
19511,949,0002,132,000
19613,301,0001,752,000
19713,828,0001,824,000
(Agriultural and Pastoral Statistics of New Zealand 1861-1954. Department of Statistics, New Zealand 1956)
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cowNational KgMS (000,000)
74/752,079,88618,540112not available224425
75/762,091,95018,442115not available240466
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cow*National KgMS (000,000)
76/772,074,44317,924117not available250479
77/782,052,62417,363120not available229437
78/792,039,90216,907123not available249477
79/802,045,80816,506126not available264506
80/812,027,09616,089129not available257491
81/822,060,89815,82113363252491
82/832,128,19915,81613764250505
83/842,209,72515,93214065270564
84/852,280,27315,88114664270578
85/862,321,01215,75315064275609
86/872,281,84915,31515165242524
87/882,236,29014,81815365270579
88/892,269,07314,74415766250541
89/902,313,82214,59515967257572
90/912,404,14514,68516470259599
91/922,438,64114,452169not available275637
92/932,603,04914,45818074259651
93/942,736,45214,59718877278736
94/952,830,97714,64919380271733
95/962,935,75914,73619982283788
96/973,064,52314,74120886301880
97/983,222,59114,67322087292891
98/993,289,31914,36222991256850
99/003,269,36213,86123693288970
00/013,485,88313,892251963101046
(Livestock Improvement Corporation Limited Dairy Statistics 2000-2001)
Additional Information Requested for speech notes
** Approximately 12-14KgDM are required to produce 1KgMS.This will vary depending on the cows production efficiency and the time
of the year (I.e. the nutritive value of the feed).
Sheet2
Sheet3
-
Number of cows (1895 - 1971)
257140
372416
633733
890220
1499532
1799603
1898197
1997819
2361599
Number of cows
Number of Cows (1895 - 1971)
Number of Cows (1974 - 2002)
2079886
2280273
2830977
3485883
Number of cows
Number of cows (1974 - 2002)
Production (1901 - 1971)
202000104000
302000439000
8980001369000
19890001636000
22630002366000
19490002132000
33010001752000
38280001824000
Butter
Cheese
Hundred weights
Production
Production (1976 - 2001)
479
524
788
1046
Kg Milk Solids
Production (1976 - 2001)
Cow Productivity
250.25
229.25
248.5
264.25
257.25
252
250.25
269.5
269.5
274.75
241.5
269.5
250.25
257.25
259
274.75
259
278
271
283
301
292
256
288
310
&A
Page &P
KgMS per cow
1976 - 2001
KG Milksolids
Cow Productivity
Sheet1
Notes for Tony Baldwin's Speech @ Dairy Conference 2003
YearNumber of cows
1895257,140
1901372,416
1911633,733
1921890,220
19311,499,532
19411,799,603
19511,898,197
19611,997,819
19712,361,599
YearButter produced (Cwts)Cheese Produced (Cwts)
1901202,000104,000
1911302,000439,000
1921898,0001,369,000
19311,989,0001,636,000
19412,263,0002,366,000
19511,949,0002,132,000
19613,301,0001,752,000
19713,828,0001,824,000
(Agriultural and Pastoral Statistics of New Zealand 1861-1954. Department of Statistics, New Zealand 1956)
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cowNational KgMS (000,000)
74/752,079,88618,540112not available224425
75/762,091,95018,442115not available240466
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cow*National KgMS (000,000)
76/772,074,44317,924117not available250479
77/782,052,62417,363120not available229437
78/792,039,90216,907123not available249477
79/802,045,80816,506126not available264506
80/812,027,09616,089129not available257491
81/822,060,89815,82113363252491
82/832,128,19915,81613764250505
83/842,209,72515,93214065270564
84/852,280,27315,88114664270578
85/862,321,01215,75315064275609
86/872,281,84915,31515165242524
87/882,236,29014,81815365270579
88/892,269,07314,74415766250541
89/902,313,82214,59515967257572
90/912,404,14514,68516470259599
91/922,438,64114,452169not available275637
92/932,603,04914,45818074259651
93/942,736,45214,59718877278736
94/952,830,97714,64919380271733
95/962,935,75914,73619982283788
96/973,064,52314,74120886301880
97/983,222,59114,67322087292891
98/993,289,31914,36222991256850
99/003,269,36213,86123693288970
00/013,485,88313,892251963101046
(Livestock Improvement Corporation Limited Dairy Statistics 2000-2001)
Additional Information Requested for speech notes
** Approximately 12-14KgDM are required to produce 1KgMS.This will vary depending on the cows production efficiency and the time
of the year (I.e. the nutritive value of the feed).
Sheet2
Sheet3
-
Number of cows (1895 - 1971)
257140
372416
633733
890220
1499532
1799603
1898197
1997819
2361599
Number of cows
Number of Cows (1895 - 1971)
Number of Cows (1974 - 2002)
2079886
2280273
2830977
3485883
Number of cows
Number of cows (1974 - 2002)
Production (1901 - 1971)
202000104000
302000439000
8980001369000
19890001636000
22630002366000
19490002132000
33010001752000
38280001824000
Butter
Cheese
Hundred weights
Production
Production (1976 - 2001)
479
524
788
1046
Kg Milk Solids
Production (1976 - 2001)
Cow Productivity
250.25
229.25
248.5
264.25
257.25
252
250.25
269.5
269.5
274.75
241.5
269.5
250.25
257.25
259
274.75
259
278
271
283
301
292
256
288
310
&A
Page &P
KgMS per cow
1976 - 2001
KG Milksolids
Cow Productivity
Sheet1
Notes for Tony Baldwin's Speech @ Dairy Conference 2003
YearNumber of cows
1895257,140
1901372,416
1911633,733
1921890,220
19311,499,532
19411,799,603
19511,898,197
19611,997,819
19712,361,599
YearButter produced (Cwts)Cheese Produced (Cwts)
1901202,000104,000
1911302,000439,000
1921898,0001,369,000
19311,989,0001,636,000
19412,263,0002,366,000
19511,949,0002,132,000
19613,301,0001,752,000
19713,828,0001,824,000
(Agriultural and Pastoral Statistics of New Zealand 1861-1954. Department of Statistics, New Zealand 1956)
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cowNational KgMS (000,000)
74/752,079,88618,540112not available224425
75/762,091,95018,442115not available240466
SeasonNumber of cowsNumber of herdsAv. Herd sizeAv. Effective HaKgMS/cow*National KgMS (000,000)
76/772,074,44317,924117not available250479
77/782,052,62417,363120not available229437
78/792,039,90216,907123not available249477
79/802,045,80816,506126not available264506
80/812,027,09616,089129not available257491
81/822,060,89815,82113363252491
82/832,128,19915,81613764250505
83/842,209,72515,93214065270564
84/852,280,27315,88114664270578
85/862,321,01215,75315064275609
86/872,281,84915,31515165242524
87/882,236,29014,81815365270579
88/892,269,07314,74415766250541
89/902,313,82214,59515967257572
90/912,404,14514,68516470259599
91/922,438,64114,452169not available275637
92/932,603,04914,45818074259651
93/942,736,45214,59718877278736
94/952,830,97714,64919380271733
95/962,935,75914,73619982283788
96/973,064,52314,74120886301880
97/983,222,59114,67322087292891
98/993,289,31914,36222991256850
99/003,269,36213,86123693288970
00/013,485,88313,892251963101046
(Livestock Improvement Corporation Limited Dairy Statistics 2000-2001)
Additional Information Requested for speech notes
** Approximately 12-14KgDM are required to produce 1KgMS.This will vary depending on the cows production efficiency and the time
of the year (I.e. the nutritive value of the feed).
Sheet2
Sheet3
-
NUMBER OF DAIRY CO-OPS
-
FIRST 125 YEARS: POSITIVE OUTCOMES
Strong farming skills + innovation
Established an important industryGrown markets
-
FIRST 125 YEARS:NEGATIVE OUTCOMESLost wealth poor returns on capital + innovation suppressed.
Poor skill-base under-developed skills in business + marketing
Unwise reliance on low production costs threatened by genetics + overseas innovation
-
125 YEAR STRATEGY:NEGATIVE OUTCOMES (contd)Weak governance + political leadership leadership is still afraid.Inflexible assets misallocated investment in large, inflexible plantLack of diversification narrow product base
-
CULTURAL BARRIERSMisplaced faith in pure co-operative Pure producer co-ops do not work well in highly differentiated markets.
White gold myth Fs job is to turn milk into cash. Get richer by making more milk. NO!
-
CULTURAL BARRIERS (contd)Rights to wealth Those who produce raw milk are entitled to the lions share of wealth created from milk. NO!The real value is extracted by those who change raw milk and its ingredients into products that consumers value highly. Compare milk to timber standard wood cuts used to build a new house do not give it value. The value comes from the houses design, aspect, fittings, and furnishings. Suppliers of those products capture the lions share of the value, not the people who grow and harvest trees.
-
CULTURAL BARRIERS (contd)Dont trust outsiders Farmers are unnecessarily suspicious of approaches from business interests Arthur Ward Who the exporter serves Farmers expect F to serve them as producers. Should serve customers. Fixation with control Farmers are not in control. Blind to more efficient ways of gaining control.
-
PART 2: MEGA-MERGER
Race for Control
McKinseys vs Commerce Commission
Comparison of 1999 + 2001
2001 Negotiations
2001 Decision
-
1990 2000: Race for ControlKiwi vs NZDG vs Dairy BoardConflict of PhilosophiesConflict of EgosCo-operative vs CorporateSpring vs StoreyLarsen vs NorgateSingle exporter vs Competing coysvd Heyden vs Gent
-
Dairy BoardKiwiNZDG35%58%100%
-
InefficiencyWeak pricingInefficient productionInefficient investmentPoor GovernanceManagement control of Dairy Board + KiwiCap on director numbers at Dairy Board (5/13)
Real Economic Problems
-
McKinseys
-
- * -
Global revenues NZ$30 billion
Revenue growth 15% pa
ROTGA 15% pa
10 Year Financial Aspiration
-
Milk Cost$NZ/kg Milk SolidsMilk ProductionMillion TonnesNZAustraliaPolandArgentinaUSAFranceGermanyBrazilNetherlandsAustriaItalyGlobal Dairy Industry Curve
-
If the US industry were to double its rate of unit cost improvements through biotech while we do nothing, it will have destroyed $5bn of value for NZDI after 5 yearsMcKinseys
-
- * -
Time
Profit
Horizon 1
Horizon 2
Horizon 3
Extend and defend core businesses
Build emerging businesses
Create viable options
Defend and exploit core low cost positionEarn the right to grow
Industry Milks strategyGlobal slivers in specialised ingredientsLeverage our ingredients network beyond NZ Dairy
Industry biotechnology agendaRisk management services
Growth Horizons
Concurrent management across 3 HorizonsAs we interviewed the executives of our great growers, we found a striking similarity in the way they talked about their enterprises. In every case, the CEO could describe a concurrent set of initiatives across three time periods or horizons. In Horizon 1, the shorter term, these companies have a range of profit improvement initiatives: sales force stimulation, pricing, revenue management, new products and services, and cost-reduction to name a few. In the medium term, or Horizon 2, they have several very powerful growth engines that will mature over the next 3 to 5 years and become major new profit generators. These are typically new businesses that have not yet reached maturity.These companies also have a range of initiatives in Horizon 3 aimed at creating options that might, or might not, be exercised over the coming decade options that would position them to pursue new directions but which do not demand major capital investments in the near-term.
-
REVENUE GROWTH
$ Millions
$19 billion Horizon 2 and 3Non-core growth
$11 billion from Horizon 1 Core business
Horizon 2 and 3
-
Project Structure
- * -
FINANCIAL CAPACITY
Total Capital required
Less Debt capacity
Additional capital required
$NZ billions
12
8
4
Fair value Share Std
Externalequity
Retentions
Key - trade off - Retentions/ Entry Fees/ Equity- not an issue until 3-4 years of growth in consumer4 billion over 10 years = 400 million =4c/kgData : reference 60 debt to assets50 assets to sales15 ROTGAShare value average $10maximum $18EBITDA Multiple10-15
-
Project Structure
- * -
SUPPLY CHAIN STRUCTURE - SIMPLIFIED
Farm
Processor
Merchant
Trading
Ingredients
Consumer
Walk through
Ingredients = Slivers
Merchant - Sales rate- Stock financing- Basic price
-
OPTION 4AOPTION 3OPTION 6
-
Project Structure
- * -
CAPITAL / OWNERSHIP QUESTIONS
No
Do we need to structure parts of the business to provide for external equity?
Should the Industry have the ability to differentiate payout?
Should returns from downstream investments be delinked from supply?
Should the Industry maintain a co-operative ownership structure for all parts of the business?
External / Internal equity
OwnershipLinked/Delinked toSupply
Differentiated/Uniform Payout
Corporatevsco-operative
Yes
Yes
CurrentNo*
* Constitutional change required
Summary - choices
-
Project Structure
- * -
ECONOMIES OF SCALE BENEFITS: MANUFACTURING $ millions annual savings
One Company
50 - 80
Two large companies
35 - 55
Total synergies
Difference between one and two large manufacturers is $15-25 million pa
Key area- Overheads- Best practice - Capex differential
Back up
-
Project Structure
- * -
Consumer separate subsidiary.
Single company for processing, merchanting and ingredients
OPTION 6
Repeat Key points of Option 6
-
Project Structure
- * -
SUMMARY
Option 6 is preferable to a pure Option 3 by $800 million if x-inefficiency can be eliminatedOtherwise a pure Option 3 is preferable to Option 6 by $300 million if breakdown of Option 3 can be prevented
We believe that the x-inefficiency can be managed under Option 6
Option 3- Academic/ Pure- highly conservative- huge value loss in oscillation between 3 - 4A
- need to manage inefficiency
-
Project Structure
- * -
MAKING OPTION 6 WORK
Performance Management
Making Option 6 work
Governance
+
Problem can be broken into two aspects
-
Project Structure
- * -
EFFECTIVE PERFORMANCE MANAGEMENT
Challenges
Principles
Solution
No transparent milk priceAdministered product prices
Replicate the market
Single independently administered NZ milk priceArms length based transfer prices
Big companyDiverse and complex
Provide farmer choiceOrganise around small performance cells
Separate off areas of business specalisationAccountable, autonomous performance cellsAggressive targets
As read
-
1999 COMPARED TO 2001 MERGER PROPOSALS
FEATURE
2001
1999
Goal: to grow sales to $30 billion in 10 years
Yes
Goal: to save $300m pa
Yes
Merge Dairy Board, Kiwi and NZ Dairy Group into one mega co-operative
Yes
Deregulation in 12 months
Yes
-
Commerce Commission approval required
No
Yes
Sell 50% of NZ Dairy Foods
Yes
Yes
$15 billion of new capital
?
Yes
An extra $4 billion of new share capital from non-farmers
Promoters
now say no
Yes
Separate A shares for manufacturing + exporting of NZ milk
No
Yes
-
Separate quota shares (Q shares) for farmers
No
Yes
Trading of A shares among farmers within band of 80-120% of supply
No
Yes
Farmer choice to invest in new overseas consumer-market ventures
No
Yes
Separate vehicle to for new overseas consumer-market ventures
No
Yes
Relative simplicity of withdrawing capital
Lower
Higher
-
FEATURE
2001
1999
Avoid special Government regulations and regulator to oversee mega co-op
No
Yes
Requirement on mega co-op to sell milk to competitors
Yes
No
6 year phase-out for automatic holding of quota rights by mega Co-op
Yes
Yes
Farmer-owned Quota Company to hold and tender quota rights after 6 years
No
Yes
-
McKinseys Claimed BenefitsPreviously identified (BDP/IEIS)130 Integration of manufacturing 50Interface simplication 30Catalytic event 100TOTAL $310m
-
On $8b merger, industry claims gains: $180mCommerce Commission:
Maximum gains: $92m
Productive efficiency losses: -$192
Dynamic efficiency losses: -$500m
-
2000/01 Negotiations
-
NZDGChairmen: 1998 2002SpringStoreyLeadervdHeydenCEOs: 1998 2002 FootnerMilneSpencerDairy BoardChairmen: 1998 2002 SpringStoreyFraserRoadleyvdHeyden
-
Pure Co-op + Single ExporterMore Corporate + Competing ExportersSpringRoadleyYoungGentBoothBayliss
StoreyFraserCalvertAllisonVd HeydenRattrayTownsend
-
NZDGPure co-opMore corporateKIWISingle entityNoNorgate as CEONoEqual value sharesNoNZ Milk in co-opOutside directorsNoCorporate mechanismsNoNZDG control of Dairy Board(58% control)No - outside shareholdersTwo competing exporters (Project Eagle)
-
Wellington, Oct 13, 1998, NZPA - Retiring Dairy Board chairman Sir Dryden Spring today put the boot into the Government's plan for the deregulation of producer boards, describing it as a gigantic economic hoaxDairy Board chairman Sir Dryden Spring is adamant the industrywill remain farmer-owned and continue selling through a single marketer owned by the co-operatives following deregulation
-
Decision 2001 In Brian Edwards biography The PM is states that she shot a line across officials and gave directions that the legislation was to be prepared authorising the merger. Dryden Spring was the key player
-
PART 3: CHANGE
Nature of Fonterra
Four fundamentals
Eight specifics
Drivers of change
-
To serving customers to capture the value they put on different products and servicesFonterra is a structure in transition:
From serving producers and appease their competing perceptions of fairness
-
Farmers need to receive from F real signals of how customers value their products.
Fonterra needs to receive from shareholders real signals of how they value Fonterras performance.
FOUR FUNDAMENTALS
-
FOUR FUNDAMENTALSFarmers need to develop new skills To participate as shareholders, not just as producers
Directors need to provide some real leadership
-
EIGHT SPECIFIC CHANGESVolume + Price F would offer suppliers a choice of contracting options, eg Fs menu of contracts would be customer driven ie how to best maximise value from customers eg contracts for supplies to value-added may be for specified volumes. Supplies for commodities may be less volume constrained. Suppliers would select the options that best matched their skills and circumstances.
fixed volumes at fixed prices set in advance;
no fixed volume at spot prices; or part fixed, part open.
-
EIGHT SPECIFIC CHANGESSurplus milk F would pay the true marginal value of surplus milk (ie it charges full costs for processing an extra unit of milk) Dividends Paid out to farmers as a separate dividend (esp NZ Milk)
-
EIGHT SPECIFIC CHANGESShare value + monitoring Fs co-op shares are tradable among farmers within 80-120% of their supply. This would provide on-going (not just annual) and multiple (not just a single valuers) signals to F of how shareholders value its performance. It would also significantly reduce Fs current redemption risk, which is like a run on a bank, where farmers all at once want to cash up their F shares. To mitigate this risk, F has put in place a number of very distorting devices, including its option to redeem not with cash, but by issuing redeemable preference shares and capital notes. F has also imposed a tight window on when shares can be redeemed.
-
EIGHT SPECIFIC CHANGESValue added business NZ Milk separate. Share tradable among farmers. Later open to outside investors (up to say 49%). Board of directors Reduced to nine as originally proposed.The current number (13) is simply a carry over from the Dairy Board and (before that) the Dairy Products Marketing Commission (since around 1947). Diversify beyond milk Use skills and some risk capital to capture margins in new marketsLike its competitors Kerry, Nestle, Danone, Kraft and Deans
-
EIGHT SPECIFIC CHANGESF ceases to be a monopoly Sell down enough of Fs business in NZ (10 15%) to end restrictions of Government regulations. The gains of maintaining a near-monopoly in NZ, particularly in processing raw milk, are unlikely to outweigh the costs.
Between 1890 and 1920, the market for processing raw milk was highly competitive in NZ. The co-operative culture viewed this competition as pernicious as some co-operatives failed.
Introducing a competitive environment is likely to significantly boost Fs performance, to the benefit of farmer-shareholders.
-
DRIVERS OF CHANGEConsumer competition need to be more customer driven and less capital constrained
Supplier expectations big vs small. Change of generation. Cross-subsidies will be removed. User-pays transport costs. Fixed collection fees. Regional milk payouts
-
THE STORY OF TWO HENRYS
-
Henry ReynoldsHenry NestleIn 1886, Henry Reynolds created Anchor brandIn 1867, Henry Nestle created Nestle brand Two different paths, two different strategies.How did each business fare?
-
Henri Nestle was a merchant and small-scale inventor.1947: Purchased Maggie.1867: Invented the worlds first solid infant formula using Swiss milk. 1905: Moved into condensed milk. 1930s: Moved into coffee. (Nescafe) Not coffee (beans) the commodity. Nestle created freeze dried and granulated instant coffee.1929: Moved into chocolate (Nestle).1963: Purchased frozen food giant Findus
-
Henri Reynolds was a businessman. 1896: Sold factories to NZ Dairy Association.Anchor brand remained tied to one key product NZ butter in England. [ ]: Merged to form the Big Octopus NZ Cooperative Dairy Company
-
CONCLUSIONIndustry founders shared goal was to be free men. Not servile or afraid. The goal has not been achieved. The key is thinking with a free mind. Look outside the box.
-
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