Agribusiness: Let's have dividend that covers cost of shares

Whitianga dairy farmer Dirk Sieling.

Whitianga dairy farmer Dirk Sieling sees a strong future in the dairy industry -- he and wife Kathy have just spent nearly $1 million on a new 44-a-side herringbone cowshed and effluent system for their farm.

Sieling remains hopeful international milk prices will increase, probably later this season.

"Most farmers say they can stand one season of low prices and will be okay," he says. "But with two seasons they will struggle and with three go broke. And that will affect our economy for years to come."

He's a former farmer representative on the Fonterra Shareholders' Council and right behind the co-operative's 3V (volume, value and velocity) strategy.

"We've got to get out of the commodity cycle as much as we can and get more of our own branded products," Sieling says. "The global opportunities for our co-operative are vast and we need to capitalise on them faster. Too much time and opportunity has already been lost since the formation of Fonterra."

He's disappointed the co-operative's dividend didn't increase as farmers had been told it would when milk prices were low. At its half year results, Fonterra trimmed 5 cents a share off its forecast dividend to between 20-30 cents. It cited a lag between production and sales, meaning the value of its ingredients inventory was higher in the first quarter.

"What that told me was that the strategy wasn't going fast enough," Sieling says.

He believes the entire culture of the co-operative needs to change.

"From middle management down they know farmers are the owners of the business, but they don't think of them as owners."

Sieling suggests all staff spend time on shareholders' farm to really get to grips with their business. In his case that involves milking 630 cows on 680ha, some of which is in bush and pine trees.

His farm's production is targeted at 157,000kg milk solids this season, with feeding supplements through an in-shed feeding system. A further 104,000kg milk solids is expected to come from a nearby 300-cow equity partnership on 90ha.

Sieling also wants Fonterra to improve its governance and representation structures. He jointly led a Governance and Representation Review Joint Working Group with Fonterra director, Malcolm Bailey, and is disappointed its recommendations won't be put to shareholders at Fonterra's annual meeting in November.

The global opportunities for our co-operative are vast and we need to capitalise on them faster.

Dirk Sieling

The proposed changes weren't drastic, he says, but would have been a modest step on a path of gradual improvement.

He also believes the provisions of the Dairy Industry Restructuring Act have become "ridiculous" as start-up companies have grown in strength.

"We don't need any more money going overseas," he says, referring to the number of companies based offshore.

He believes Government will listen to the Commerce Commission's report which is the first stage of reviewing the legislation.

"I'm definitely optimistic about the dairy industry," he says. "But what will give farmers confidence in Fonterra will be a competitive milk price and when it pays a dividend that pays the cost of their shares."