The Country
  • The Country home
  • Latest news
  • Audio & podcasts
  • Opinion
  • Dairy farming
  • Sheep & beef farming
  • Rural business
  • Rural technology
  • Rural life
  • Listen on iHeart radio

Subscriptions

  • Herald Premium
  • Viva Premium
  • The Listener
  • BusinessDesk

Sections

  • Latest news
  • Coast & Country News
  • Opinion
  • Dairy farming
  • Sheep & beef farming
  • Horticulture
  • Animal health
  • Rural business
  • Rural technology
  • Rural life

Media

  • Podcasts
  • Video

Weather

  • Kaitaia
  • Whāngarei
  • Dargaville
  • Auckland
  • Thames
  • Tauranga
  • Hamilton
  • Whakatāne
  • Rotorua
  • Tokoroa
  • Te Kuiti
  • Taumurunui
  • Taupō
  • Gisborne
  • New Plymouth
  • Napier
  • Hastings
  • Dannevirke
  • Whanganui
  • Palmerston North
  • Levin
  • Paraparaumu
  • Masterton
  • Wellington
  • Motueka
  • Nelson
  • Blenheim
  • Westport
  • Reefton
  • Kaikōura
  • Greymouth
  • Hokitika
  • Christchurch
  • Ashburton
  • Timaru
  • Wānaka
  • Oamaru
  • Queenstown
  • Dunedin
  • Gore
  • Invercargill

NZME Network

  • Advertise with NZME
  • OneRoof
  • Driven Car Guide
  • BusinessDesk
  • Newstalk ZB
  • Sunlive
  • ZM
  • The Hits
  • Coast
  • Radio Hauraki
  • The Alternative Commentary Collective
  • Gold
  • Flava
  • iHeart Radio
  • Hokonui
  • Radio Wanaka
  • iHeartCountry New Zealand
  • Restaurant Hub
  • NZME Events

SubscribeSign In
Advertisement
Advertise with NZME.
Home / The Country / Opinion

Fran O'Sullivan: 'Rough' calculations are sobering reading

Fran O'Sullivan
By Fran O'Sullivan
Head of Business·NZ Herald·
19 Jun, 2018 05:00 PM4 mins to read

Subscribe to listen

Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber?  Sign in here

Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
‌
Save

    Share this article

Deputy Prime Minister Winston Peters talks about his relationship with the business community and sets out his plans for when he replaces Jacinda Ardern as Acting Prime Minister.
Fran O'Sullivan
Opinion by Fran O'Sullivan
Head of Business, NZME
Learn more

Winston Peters was armed with nothing more than rough working calculations when he claimed Fonterra was costing the economy more than $2 billion while presiding over the traditional post-Cabinet press conference on Monday.

That was made clear by his office yesterday when an official confirmed Peters' calculations were not based on "Government-sourced advice".

"The source of this information is business community based - a person from the shareholding community," the official said. "And very much an estimate."

At the press conference, Peters said the cost of Fonterra decisions to the economy had been $1.383b to date, "including $100 million of taxpayers' money trying to sort things out on the wharves and docksides of China". A further $800m cost loomed - a reference to the expected cost of biosecurity measures to try and eradicate Mycoplasma bovis from the national beef and dairy herd.

Put in this context a $2b cash burn is sufficiently large to justify the coalition Government taking a very hard look indeed via an official review at whether NZ's largest company has made the most of the legislative mandate it was granted in 2001 through the Dairy Industry Restructuring Act. This overrode competition laws so the country's two major dairy companies and the former NZ Dairy Board could merge to form Fonterra.

Advertisement
Advertise with NZME.
Advertisement
Advertise with NZME.

It's long been suggested Fonterra should be broken up into a commodity business and a listed offshoot making value-added products. Opinion is divided and there are complex issues in play as well as competitive interests.

A February Cabinet paper which launched the DIRA review said one area for discussion was "Fonterra's co-operative structure and its impact on Fonterra's ability to raise capital to invest in innovation and value creation". The debate must be put on a professional footing.

Peters - who is now standing in for the Prime Minister while Ardern is on maternity leave - should have his private sector adviser's estimates verified and updated by Treasury officials and Ministry of Foreign Affairs and Trade officials and presented through an appropriate Cabinet paper. Particularly if the Coalition (and the Acting Prime Minister himself) are to continue to rely on them to justify a wide-ranging look at the dairy sector and the potential changes which could see Fonterra restructured.

When it comes to the $800m expected biosecurity costs, Peters was not being entirely fair to Fonterra. But he was making a point that the coalition Government is standing behind the dairy sector and wants to ensure the taxpayer dollars are well spent. First some context.

It is important to note Fonterra is not the only NZ blue chip to burn through a huge amount of cash in recent years. Peters' $1.383b estimated losses via Fonterra are more than, for instance, the $952m losses over 2017/2018 that Fletcher Building unveiled in February. Shareholders have to wear that themselves. At tomorrow's Investors' Day in Sydney, Fletchers CEO Ross Taylor will reveal his strategy for turning that company around.

Discover more

Business

Winston Peters pins $2B-plus 'losses' to NZ on Fonterra

18 Jun 07:10 AM

Federated Farmers asks rural schools to ban calves

21 Jun 11:00 PM
Business

Synlait to invest $250m in Pokeno site's spray dryer

19 Jun 11:30 PM

Like Fonterra there are also downstream impacts from the Fletcher fiasco. But it does not have the Government on its tail.

The company has parked its vertical construction business while it sorts itself out. This will have an impact on construction pricing across the board.

Advertisement
Advertise with NZME.

Importantly, accountability has been exacted at governance and CEO level. At Fonterra only the CEO has yet to pay a price. Just a week ago, Cabinet Minister and NZ First MP Shane Jones called for Fonterra chairman John Wilson to resign.

But loose talk by Jones and NZ First MP Mark Patterson has given an unfortunate impression their venom was fuelled as much by political payback over the dairy sector's opposition to proposed policy changes during last year's election campaign as hard-nosed analysis.

Peters' resort to calculations this week was an attempt to shift the debate on from last week's.

Purists will take issue with the breakdown Peters' office provided. But for the purpose of clarity it is useful to reprise the official's words. The estimated loss to date was derived from:

• $750m worth of investments made by Fonterra in the Beingmate deal which were effectively lost (combination of a write down in company value and half year negative result);

• $300m loss of return resulted from the sales for the last three years;

Advertisement
Advertise with NZME.

• $183m pay out to Danone for the WPC80 incident (botulism scandal);

And the generic collateral cost/damage from the Fonterra botulism issue from regulatory and compliance work ie Government agencies dealing with the issues and a loss of business for other NZ companies - approximately $150m. This, the official said, made up the total estimated loss to date of $1.383b.

Expect Peters and Jones to keep hammering this point. Irrespective of the back of the envelope calculations, the figures are sobering.

Save

    Share this article

Latest from Rural business

The Country

More work needed to protect horticultural land, says industry

09 Jul 12:04 AM
The Country

Red meat exports hit $1.15b in May despite drop in volumes

07 Jul 11:02 PM
The Country

Cardrona Hotel sale could set Trade Me record: 21k views in under a week

07 Jul 09:01 PM

From early mornings to easy living

sponsored
Advertisement
Advertise with NZME.

Latest from Rural business

More work needed to protect horticultural land, says industry

More work needed to protect horticultural land, says industry

09 Jul 12:04 AM

“We need to create a legal framework that protects production."

Red meat exports hit $1.15b in May despite drop in volumes

Red meat exports hit $1.15b in May despite drop in volumes

07 Jul 11:02 PM
Cardrona Hotel sale could set Trade Me record: 21k views in under a week

Cardrona Hotel sale could set Trade Me record: 21k views in under a week

07 Jul 09:01 PM
26-year-old beats six finalists to win Young Farmer of the Year

26-year-old beats six finalists to win Young Farmer of the Year

05 Jul 11:41 PM
Solar bat monitors uncover secrets of Auckland’s night sky
sponsored

Solar bat monitors uncover secrets of Auckland’s night sky

NZ Herald
  • About NZ Herald
  • Meet the journalists
  • Newsletters
  • Classifieds
  • Help & support
  • Contact us
  • House rules
  • Privacy Policy
  • Terms of use
  • Competition terms & conditions
  • Our use of AI
Subscriber Services
  • NZ Herald e-editions
  • Daily puzzles & quizzes
  • Manage your digital subscription
  • Manage your print subscription
  • Subscribe to the NZ Herald newspaper
  • Subscribe to Herald Premium
  • Gift a subscription
  • Subscriber FAQs
  • Subscription terms & conditions
  • Promotions and subscriber benefits
NZME Network
  • The New Zealand Herald
  • The Northland Age
  • The Northern Advocate
  • Waikato Herald
  • Bay of Plenty Times
  • Rotorua Daily Post
  • Hawke's Bay Today
  • Whanganui Chronicle
  • Viva
  • NZ Listener
  • Newstalk ZB
  • BusinessDesk
  • OneRoof
  • Driven Car Guide
  • iHeart Radio
  • Restaurant Hub
NZME
  • About NZME
  • NZME careers
  • Advertise with NZME
  • Digital self-service advertising
  • Book your classified ad
  • Photo sales
  • NZME Events
  • © Copyright 2025 NZME Publishing Limited
TOP