KEY POINTS:
Last week Fonterra dropped plans for a May vote to create a company to hold all the co-operative's assets.
The vote was part of a capital restructure proposal which would have seen another vote in 2010 to list the asset-holding entity.
The restructure is planned to ensure capital
for growth, to protect against the redemption risk of farmers selling up and to provide investor choice.
However, negative feedback from farmers meant there was no point proceeding with the first vote if it was destined to fail.
The board still thinks its preferred option is the best choice and is committed to the 2010 date, and the damage from a cancelled vote pales by comparison to actually losing one.
Farmers are uncomfortable about outside investors, want information on how returns would be shared and saw the second vote as inevitable if they approved the first one.
The proposal is far from dead, farmer leaders are happy there will be more time for discussion and the board, which has always said it is ready to listen, may well get what it wants eventually.
The preferred option was unveiled by Fonterra chairman Henry van der Heyden in November and with hindsight, a first vote in May was perhaps too ambitious.
Feedback from farmers was generally receptive but it seems they are not going to be led by the hand and told what is best for them. Fonterra has already discounted investor choice among the three reasons after feedback from farmers said it was less important.
Chief executive Andrew Ferrier has said there is no panic about the status of Fonterra today but the proposal is about future-proofing the company.
Chairman of Federated Farmers dairy section Frank Brenmuhl says there is a feeling this may be more of an issue of management than capital structure.
"Do you actually have to change the capital structure to achieve what we want to achieve?" Brenmuhl says. "Can this be done with a change of management as opposed to a change in capital structure?"
A change of management style as opposed to people?
"That's something that we don't know at this stage but farmers are asking those questions. Why can't we do this under our current thing? There's some of the whys which still need to be answered."
Despite delivering the best results farmers have ever seen, the board and management may well find they are justifying themselves along with their proposal for change.
KIWIFRUIT COST CUT
Forecast returns to kiwifruit growers have grown in total but the exchange rate is pushing payments per tray well down on last year, with the currency outlook for next season "not overly positive".
Exporter Zespri says the forecast total fruit and service payments have increased by $4.6 million to $649.8 million, compared with $633.9 million last season.
However, the green fruit forecast for the season ending March was $6.29 a tray, up from $6.23 in December but down more than 15 per cent from $7.41 the previous season.
The gold fruit forecast was $8.79 a tray, compared with $8.75 in December but down 6.7 per cent from $9.42 last season.
Zespri chief executive Tony Nowell says it has been a very good year from a markets perspective, with good growth in Japan, east Asia and even in Europe, despite intense competition from Chilean fruit.
"The problem being of course is trying to bring it [the money] home," Nowell says.
The exchange rate has played a major part in the drop in tray payments and the outlook is not overly positive for the coming season, he says.
The key currency for the industry was the Japanese yen, with just under 40 per cent of fruit exported to Japan.
The New Zealand dollar has been relatively stable against the euro during the past five years, while shipping and oil costs give the industry a natural hedge against the US dollar.
"If the yen stays where it is at the moment then it will be a relatively tough year again," Nowell says.
The yen has softened recently and the trend was for gradual rises and falls but the industry cannot rely on currency shifts, he adds.
"We need to improve the economic model despite what the currency may do."
An Industry Advisory Council sub-committee has been set up to examine the cost structure of the sector and has identified 19 projects.
It is gratifying to see the industry pull together to deal with the issues, Nowell says.
"And Zespri is very much taking a lead around the issue of cost and how to drive cost out of the system."
The cost of oil, labour, harvesting and packing have risen, he says.
Zespri was targeting its overheads - 9 per cent of industry costs - but the largest possible area of impact on returns will come from grower, post harvest and pool cost initiatives, Nowell says.
"One of the greatest loss areas in the industry today is fruit quality ... right from how the fruit is taken off the vine, to how it's handled in cool storage, to how it's handled down packing lines, to how it's handled in market."
But it won't be cost cutting at any price.
"We've got to make sure that the moves that we do make to cut out costs are in fact value enhancing as well as cost-cutting at the end of the day."
To put some scale on the issue Nowell says he would like total payments to be $100 million ahead of where they are today.
There is a wide spread among grower performance with some doing relatively well, some struggling and the majority in the middle ground.
To help ease cash flow issues for growers Zespri will return half the proceeds from the licence tender for gold fruit - $3 million at a fully imputed dividend of 12.67c a share.
Chairman Craig Greenlees says the company has adequate capital reserves to fund growth in the short to medium term.
"While $3 million will not amount to a large amount of money at the individual grower shareholder level, every little bit helps," Greenlees says.
FARM PRICES UP
Dairy farms are going under the hammer for record prices and it's not a flash in the pan, says the Real Estate Institute.
The median price for the three months to January leapt to a whopping $4.25 million up from $3.6 million in the period to December.
REINZ national councillor and rural spokesman Peter McDonald says it was probably the biggest jump for many years.
The record prices for dairy farms coincides with booming international commodity prices and a record forecast payout from Fonterra.
The commodity bubble has not burst but it has let out a little air - the ANZ commodity price index for dairy products fell in December and January after rising for 15 consecutive months - and key dairy areas have been hard hit by drought this summer, with milk production below last year.
However, neither event will have much impact on farm prices, McDonald says.
"There's a lot of inquiry and a lot of demand for good dairy farms based on the fact that the return now is more in line with the investment."
Ironically the drought is affecting production levels out of New Zealand and under the laws of supply and demand this will in turn provide support for prices.
House buying can be a fickle undertaking, with home-owners' priority lists often a moveable feast.
But a farm is not a house, it's a business and farmers are businessmen.
McDonald says buying a farm involves drawing up budgets, forecasts and having support from banks.
"There's always a lot of logic going into the budgets. As long as the banks are on board usually that's what's the biggest factor in the market, having the banks that are prepared to invest into them," he says.
A 247ha property in the Otautau region in Southland sold for $12.3 million during the latest period, while two others sold for $9.9 million and $9.6 million each.
"It looks like it's a sustainable level of values and I don't think it's a flash in the pan or a bubble that's about to burst at all."
