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Keith Woodford describes how Fonterra entrapped itself into factory farming in China

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Keith Woodford describes how Fonterra entrapped itself into factory farming in China

This is the first of a two-part series putting Fonterra’s China Farms under scrutiny written by Keith Woodford. In this first part, the focus is on the origins of how Fonterra managed to entrap itself in its loss-making China Farms project.

Fonterra’s new leadership team of Chair John Monaghan, CEO Miles Hurrell and CFO Marc Rivers has made it clear in recent farmer meetings that debt reduction is a priority. All options are supposedly on the table. However, the only way to achieve rapid debt reduction is by selling non-strategic assets. In that context, Fonterra’s China Farms must surely be lined up in the cross wires.

Fonterra’s China Farms have been loss-making for at least four years. Accumulated losses over that period, using market prices rather than internal transfer prices, total NZD $179 million EBIT. These losses are before any contribution to Fonterra’s unallocated overheads of nearly $500 million per annum or paying interest on the borrowed capital. More detail on that in Part 2 of this series.

Given the ongoing losses, hard questions have to be asked about the strategic importance of these farms. Was it ever important for Fonterra to be producing milk in China? Even if that was the case, is it still important?

Fonterra’s China Farms go back to decisions made around 2006, with the first cattle shipped there in 2007 to the Hangu Farm. This was part of the joint venture with San Lu, and the only part of that venture to survive the 2008 melamine disaster. Soon thereafter, Fonterra embarked on further farm development at what is now known as the Yutian Hub.

To find out why Fonterra wanted to build farms in China. it is helpful to study a report by the Commercial Steering Group of the NZ-China Dairy Project, written in 2007, at a time when the first cows were on the water. The project report was never formally published, despite having a nice glossy cover, and written for a general audience. It was overtaken by events. I was part of that NZ-China Dairy Project. . . read on . . .>

  • Source/ReadMore: https://www.interest.co.nz/rural-news/96108/keith-woodford-describes-how-fonterra-entrapped-itself-factory-farming-china
  • Source: A Interest.co.nz release
Published in AGRICULTURE
Tagged under
  • Agriculture
  • primary sector news
  • keepingintouch

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