KEY POINTS:
Affco-offshoot Dairy Trust has claimed its first scalp in the wake of its dramatic takeover of Waikato-based cheese exporter Open Country Cheese, ousting its chairman, Duncan Milne, a vocal opponent of the merits of the offer.
Less than a month after he was reported saying he had no
plans to give up his role as Open Country chairman despite Dairy Trust's victory, the founding director and 1 per cent shareholder has announced his resignation from the board, to make way for more conciliatory blood.
"[Dairy Trust] have informed me that they wish to appoint their own directors," Milne explained in a missive to shareholders.
"I am still one of the largest shareholders and believe that the company has a bright future despite the volatile financial markets this year."
Open Country founder Wyatt Creech - who, like Milne, opposed the takeover - has agreed to act as interim chairman while a replacement director is sought and ahead of the election of a new chairman, according to Open Country chief executive Alan Walters.
MILK WITHOUT HONEY
Fonterra seems to have finally bought into the global phenomenon of "agflationary boosterism" in its decision to up its payout forecast beyond the levels it was dismissing as rank speculation mere months ago.
But Dexcel, the pastoral research body whose days as a standalone entity are numbered thanks to the discontent of Fonterra's shareholders, is keen to add a sense of sobriety to the celebrations, reminding farmers not to squander their windfall like some have in the past.
Farmers must learn from what happened last time payouts were over $5 a kilogram of milk solids and "ensure plans for the future are in place in order to take advantage of these boom times", Dexcel economist Matthew Newman warns.
Although an average net milk payout of $4.96/kg boosted gross farm income 38 per cent in 2000-01, major increases in spending on things like feed, fertiliser and wages boosted farm working expenses from $2.17 to $2.62 a kg of milk solids, Newman says.
"Cash operating surplus and operating profits increased significantly but in reality a lot of farms became less efficient and used more resources with only a small gain in production," he says.
"While these years were highly profitable, there was some spending that was unnecessary and could have been used more wisely."
Discretionary cash per dairy farm nearly doubled from 1999-2000 to 2000-2001, with funds spent on new dairy sheds, feed pads, tractors and other farm machinery, but in many cases it did not lead to productivity gains, Newman says.
In fact, the expansion of farm operations and the purchase or more land increased drawings per farm by $12,000 on average between 1999-2000 and 2001-2002, increasing term debt over those two years by around 15 per cent from $8.05/kg of milk solids to $9.25/kg.
Since 2000 land prices have more than doubled, placing more pressure on farms seeking to expand and increase production - meaning that a higher level of profitability is needed to achieve the required operating returns, he says.
Newman warned farmers not to rely on payouts to control how much cash they have available but to instead concentrate on things they could control, such as milk production and the resources used to produce it.
MERGER CONCERNS
Pastoral farmers have expressed concerns about the accountability of a new industry good entity to be formed out of Dairy Insight - the funding agency for industry good activities, including research - and Dexcel, the industry's agency for on-farm research and technology transfer.
The issue arises because the new entity would be both funder and provider for around a third of the farmer levy, according to the latest report from the establishment board overseeing the merger.
However board members were keen to assure their constituency that "transparency of process" will be an important component of the new structure.
After conducting 22 farmer meetings around the country, it seemed many farmers were unaware of how much research Dexcel, Dairy Insight and other organisations were carrying out on their behalf, the board says. Farmers are set to vote on the proposal in October.
WOOL WORK
Wool Equities' subsidiary Keratec and US company Keraplast - which together own a major share of the intellectual property relating to the wool protein keratin - are considering forming a joint IP company.
In its latest update to the market, Wool Equities said Keratec and Keraplast had agreed to undertake a development project for a large listed company in the United States, using the combined IP to explore "large-scale industrial processes".
However further development of that project would need "significant additional capital".
Meanwhile negotiations were under way with "large multinational personal care manufacturers" for the use of keratin in hair and skin care products.
Wool equities has also announced that Keratec came close to achieving its revised sales target of $1.6 million - double those 2006/7 - but noted with disappointment that it achieved "much less than the business plan projection" at the beginning of the financial year.
The announcements come in the wake of news that the need to cut costs has driven Wool Equities and Keratec to fold the role of chief executive into one.