New Landcorp chairman Dr Warren Parker sounds utterly unruffled at the prospect of being carpeted soon by a couple of Cabinet ministers.
As well he might.
One of them, associate Minister of State-Owned Enterprises Shane Jones, promises Parker is going to be "summonsed".
But in the next breath he says Parker has "a tremendous level of support across the
political divide" and "is a person of considerable mana".
The other minister, says Jones, will be Agriculture Minister Damien O'Connor.
The topics for discussion will include Landcorp's $10 million downgrade to its earnings forecast. And as a farmer himself, O'Connor will know how weather can play havoc with a rural business' balance sheet.
Then there's Parker's own conviction about the public good value of New Zealand's biggest agriculture business and the safety of its business strategy.
The Beehive will hold no terrors for this former leader of Crown Research Institutes.
Last but not least, tensions are nothing new between Landcorp, with its assets of close to $2 billion, and governments and their financial adviser Treasury.
Governments tend to prefer dividends from their SOEs, rather than money being retained to invest in growth or diversification projects, and Treasury reinforces this in its advice.
The new rub is that Landcorp - also known as Pāmu, which is the brand name for its value-added products - lately believes even more strongly in investing to prepare for a radically changing agriculture operating environment, to diversify and to grow.
It doesn't sound as though Parker is going to change the music, but that's a fight yet to come.
What he'll be called to Wellington about, some time after the Budget, is Landcorp's sharply lowered full-year earnings forecast. Earnings before interest, tax, depreciation and revaluations (EBITDAR) are now expected to be $27m to $32m, instead of $37m-$42m for the year ending June 30.
The main culprit, Landcorp says, was a big drop in projected milk production in the final months of this dairy season because of extremely dry weather. A cut in Westland Milk Products' milk price forecast and uncertainty over Fonterra's ability to pay a dividend this year didn't help.
Jones, who is also Associate Minister of Finance, says he is "incredibly disappointed" at the new forecast, citing three sore points where the Government has been "quite pragmatic in supporting Landcorp" and the favour hasn't been returned.
One is its pursuit of added-value business under the Pāmu brand. Second was the submission it made to the Tax Working Group last year – before Parker's December appointment - which caused a rural political hooha by saying it was not opposed in principle to taxes on fertiliser, water or capital gains.
It spent more than $11,000 on consultant assistance in drafting the submission and forgot to keep Jones in the loop.
Third, the Government gave Landcorp the green light to invest $12m as a funding partner in a new processing dryer in Hamilton to boost production of sheep milk products for export.
"That support has to be repaid with an equally rich dividend which is sadly absent," says Jones.
"We'll get the chairman in to chat about this. He's a person of considerable mana. But we cannot sugar coat this result [reforecast] and I'm keen for it to set in train a host of consequences ... for the board to be incredibly focused on the business being run in a robust, efficient manner."
Is he suggesting it's not?
"I have confidence the chairman is across that. We are the party that prevented Landcorp selling farms just before the last election. You can't use a strategy of asset sales to achieve profit with Landcorp. It is the pathway forward, not just to be a pin-up figure for the farming sector but to be educational for farmers."
Does Jones not accept Landcorp's reasons for the reforecast?
"The reasons are based on mathematics ... and being exposed to the misfortunes of Fonterra. I don't know if there are other farming operations we can peg Landcorp's performance to, but I want to make sure there is no disconnect between the shepherds and milkers at the front line and the executive and board.
"Landcorp has considerable privilege with the Crown balance sheet sitting behind it. When I meet Warren Parker there's only one thing I will be asking him – to spell out the meaning of improvement."
Parker says Jones isn't the only one disappointed, and Landcorp is working on benchmarking its performance against other farms.
"We were travelling very well mid-year and had forecast a slight increase on the basis of being ahead on production, particularly at the Taupo farms and because the [Global Dairy Trade] auctions were recovering. So we were reasonably optimistic at our February forecast but then basically from mid-January to the end of March there was virtually no rain at all at Wairakei and there are 19 dairy farms there.
"So we still had the costs and huge feed costs trying to protect cow condition for the next year and make sure we go into next winter well, as things can be tough around that area. The lion's share of our reforecast came from the dairy business."
Landcorp manages and sharemilks on these central North Island farms which produce about 40 per cent of its total milk output. Its dairy revenue is about $90m. Livestock, a $110m annual earner, is the biggest part of Landcorp's business, and any impact on dairying is material, Parker says.
The red meat business – sheep, beef and deer - is going well and pretty much on forecast, he says. A jump in shearing costs – from $1 a sheep to $4 – and a preparatory accounting adjustment of up to $2m to reflect a significant expansion into friesian bulls for better bull beef returns also played into the forecast earnings dip. The friesians are likely to have a different book value to Landcorp's traditional beef bulls.
Asked about dividend policy under his watch, Parker says Landcorp paid a $5m dividend last financial year and is budgeting to continue paying dividends.
"But we also have to have a discussion with Treasury. Should we pay a dividend or does reinvestment provide more benefit for the owner?
"At the moment I'm confident the value we are creating for New Zealand through [added-value initiatives] like sheep milk and deer milk has at least as much merit as a dividend."
Given the perennial public debate over why the state is in the farming business at all, and with the ink barely dry on a letter from Jones to Parker about the Government's expectations of the Landcorp board, this sounds like fighting talk.
The letter was pro-forma to a new chairman, but the message was clear: prioritise core on-farm operations and don't test our patience further with off-farm, added-value business ventures.
"Ministers are cautious of Landcorp entering any new value-add activities until such time as Landcorp has proven the materiality and profitability of its current portfolio of off-farm value-add activities."
Landcorp wasn't to enter any new such activities without the written consent of ministers, who expected the company to grow its current added-value activities to a "material size and proven profitability", the letter said.
"Ministers expect Landcorp will dedicate company resources to off-farm value-add activities in proportion to their contribution to Landcorp's current revenues and profits."
In fact, wrote Jones, ministers would like Landcorp to move all its value-add, off-farm activities into a separate subsidiary. "This would highlight the success of the off-farm investment."
Landcorp was also expected to consider how it could contribute to the Government's goal of planting one billion trees over the next decade.
On the vexed issue of dividends, Jones wrote that positive business performance should result in dividends to the shareholder, and the preference was for dividends over new investment.
"Shareholding ministers will be placing a higher level of focus on the principles adopted by the board to determine the annual dividend: in particular, the relationship between operating cash flow, sustaining capital expenditure, discretionary capital expenditure and dividends paid to shareholders."
Long-running tensions over Landcorp's patchy – and in some years non-existent – dividends came to a head in the 2016-2017 financial year, when Treasury advised the Government to reject the company's Statement of Corporate Intent (SCI) for that year so the board could "reconsider" its dividend policy.
The Herald's check with Treasury on its advice over the 2018-2019 SCI returned the answer that it was largely satisfied the draft document met the requirements of the SOE Act, but that Landcorp needed to finalise its commercial valuation for inclusion in the document. Treasury also recommended that Landcorp be asked to finalise its SCI.
On investment in Pāmu, Parker says it has been about $4m a year. This year $12m will be spent as its contribution to the new dryer for its export sheep milk business. "This year we are probably spending about $15m to $17m on innovation transition and transformation."
The "transformation" part of Landcorp's business strategy, Parker explains, is investigating tomorrow's farming systems.
"That's where deer milk and sheep milk and alternative dairying sit. We have good markets. We have proof of concept demonstrated at scale on-farm. That's a valuable public good function.
"In future we need to have a smaller environmental footprint and lower emissions, so how do we have pastoral farming systems that meet those environmental limits but generate higher returns?
"Landcorp should receive a lot of credit for taking the step forward that could build a different mix of pastoral farming industries which attract more stable and larger returns but with a small footprint. It's building resilience through diversification and premiumisation."
An intensive tree planting programme – of natives and exotics – and more cropping are part of this strategy.
Parker says returns from the added-value operations, which include production of organic, a2 and palm kernel extract-free milk, are "starting to appear but it will be three or four years before benefits are seen in some of those businesses".
Parker sees part of Landcorp's job as working with private farmers on transfer technology and increasing the knowledge of both parties, but the SOE has never been a popular concept with NZ Farming Inc.
It still isn't, says Federated Farmers vice-president and dairy farmer Andrew Hoggard, because it's seen as having "an open chequebook" from the state and as a corporate farmer it has little in common with your average farmer.
Told Parker is "pretty confident" Landcorp can achieve the controversial 10 per cent methane reduction requirement of the Coalition Government's Zero Carbon Bill, Hoggard scoffs.
"They're going to do more plant stuff and they don't have to make a profit, so of course they're going to meet it.
"We are saying that to achieve those numbers you have to have less feed going down a ruminant's throat. Less ruminants is all well and good when you have scale and an open chequebook but for an individual farmer that's not the situation.
"What would diversification look like for me on a small family farm? If I wanted to plant some fancy crops it'd mean taking out part of the farm that I know what I'm doing on. I'm going into a big risky thing if the weather turns pear-shaped. Plenty of times I've lost fodder crops.
"So that's the risk. And even for those other sectors going ahead like avocado and kiwifruit, they're not letting other farmers compete. They're controlling their growth, they don't want a bunch of new people coming in and ruining their markets."
Hoggard says Landcorp isn't doing itself any favours "by saying look at us, we're so fantastic, you all need to go and plant some trees".
"We just look at them and say 'hang on, didn't you chop down hundreds of hectares of trees' [for the Wairakei farms]?
"Who the hell are you to lecture us?"
On Parker's desire to work alongside private farmers to prepare for the new, highly regulated farming environment, Hoggard asks what Landcorp can teach.
"How to run large-scale corporate farms? Is that what the country and all the marketing is about?
"New Zealand is about family farms. If we want a government entity coming up with solutions for farmers, I'd ask why do we have DairyNZ and Beef+Lamb?"
Is there still a feeling that Landcorp farms should be sold?
"Definitely," says Hoggard. "And if you asked that as a survey question, you'd probably get a high level of that response."
He says he asked former Prime Minister John Key why the farms weren't sold.
"He said they'd be hard to sell and they're also sitting there for Treaty settlement purposes.
"If that's the case, why are there Landcorp farms in the South Island?"
• 100 per cent government-owned
• 130 years old
• Large-scale farming - 727,000 animals
• 125 farms NZ-wide (84 owned)
• 700 staff (paid $247m)
• Total assets: $1.85b
• Shareholder funds 86% of total funding
• 8500ha of plantation forestry
• Revenue 2017-18: $247m (previous year: $230.9m)
• Net profit after tax: $34.2m ($51.9m)
• Dividend: $5m (-)
• Return on capital: 3.4% (2.1%)
• Bank debt: $209m ($206.9m)
• CEO salary: $720,000-$729,000
Chairman Dr Warren Parker
• Former CEO, Scion and Landcare Research
• Former chief operating officer, AgResearch
• PhD in animal science
• Previous professor of agribusiness and resource management at Massey University