The NZ Agriculture Sector, Fonterra and Investors

This text supplies an summary of a presentation comprised of Fonterra at our annual investor convention final month – June, 2011 concerning the NZ dairy sector. The presentation was mentioned to have been some of the attention-grabbing of the day from the purchasers who attended.

The presentation started with Jonathan Mason, Fonterra’s CFO, stating that NZ is a improbable place for dairy farming, if not one of the best on this planet. New Zealand’s abundance of water offers us a transparent value benefit in comparison with different international locations around the globe. Our rainfall averages two metres a yr, greater than double the world common of 0.8 metres, subsequently provides a robust aggressive benefit on the subject of our means to supply pasture for grazing dairy cows. Different international locations around the globe need to complement feed their inventory to make up for the shortage of grazing. NZ additionally has a steady political panorama and a fame for secure, top quality meals merchandise in our favour.

Fonterra is a co-operative owned by 10,500 farmer shareholders. Another attention-grabbing info about Fonterra embrace:

• They’re the world’s largest exporter of milk powders.

• They’ve income of $17bn and working earnings of $1bn.

• They’ve 432 tankers throughout 17 depots

• They function 86 vegetation in NZ

• They’ve the most important milk dryers on this planet.

• They use 11 NZ ports to ship 140,000 containers every year to its thousands and thousands of shoppers around the globe

• Lately, Fonterra introduced a rise in its forecast profitability for 2011

For a rustic that solely accounts for roughly 2% of the world’s dairy manufacturing, NZ exports 95% of this offshore. That is in distinction to different dairy producing international locations around the globe the place the overwhelming majority is offered domestically.

China is a key export marketplace for NZ agriculture that’s regularly rising as folks in China migrate from rural areas to the cities – it forecasted that 350 million Chinese language folks will do that over the following 15 years. This motion results in a rising center class, which is able to see an increase in incomes, and a rise in demand for higher-value meals merchandise akin to dairy produce and meat. Fonterra exported 31% of its dairy produce to China in 2010. China’s rising demand for high-value agricultural merchandise bodes properly for New Zealand.

The agriculture sector is a troublesome funding theme for a lot of New Zealanders to realize an publicity to. With the typical dairy farm priced at$3.5m (based on the Actual Property Institute), most traders have restricted choices.

Nevertheless, this will all change within the close to future if the corporate is to be listed on the inventory change. Proudly owning a unit on this fund wouldn’t permit any voting rights, these would proceed to be retained by farmers. Traders nonetheless would have entry to distributions and adjustments out there worth of the items. It isn’t identified precisely when such a transfer will occur, it might be as early as 2012, or it might not occur in any respect, ought to the Fonterra board resolve to not proceed.

To you the investor, there are a number of the explanation why it’s best to hold an in depth eye on Fonterra – it is likely one of the high six dairy firms on this planet, accounts for ¼ of our export earnings and is accountable for 7% of our GDP.

As well as, agriculture is the spine of New Zealand’s economic system. Having Fonterra as an funding choice will present many Kiwis the power to put money into what actually is ‘NZ Inc’.

With the long run progress potential for this dairy big being enormous – they’re undoubtedly price watching.