Fonterra shareholders to review R&D

Doug Leeder

The head of dairy research funder Dairy InSight has criticised how his organisation was told of an industry review of farmer levy-funded R&D only an hour before it was announced.

Headed by former Dairy Board chairman Graham Fraser, the review follows the industry's failure to achieve targeted productivity gains. Boosting productivity is seen as crucial now other countries have caught up with New Zealand as a low-cost producer.

But Dairy InSight's chairman, Doug Leeder, said his organisation - which receives more than $40 million in annual levies - was not consulted about the review, announced by the Fonterra Shareholders Council.

"I would have thought that, if the industry wanted to achieve the collaboration and the networking that we should probably aspire to, we should have been involved in that communication well [beforehand].

"If we had been consulted or communicated with prior to this thing becoming a fait accompli we could have made some valued contributions to the way it was done."

Council chairman John Monaghan said that prior to its announcement, the review had been discussed with dairy companies Fonterra, Tatua and Westland, as well as the Dairy Companies Association.

Other organisations such as Dairy InSight, Federated Farmers and research providers would now be able to give their thoughts, he said.

But Leeder's frustration at not being involved in preparatory discussions is perhaps illustrative of what is said to be a key driver for the review: a feeling players in the dairy research sector are somehow operating in "silos"

The council's statement noted that annual productivity gains had been less than 1 per cent in recent years, compared to an industry target of 4 per cent.

One senior industry source suggested farmer concern was such that a vote on continuing to pay the levy could be lost if it was held now (the next levy vote is in 2008).

Monaghan said sustainable gains in on-farm productivity were essential to maintaining New Zealand dairying's international competitiveness.

Better industry alignment over research to ensure a higher return on farmers' R&D investment was wanted.

Monaghan also noted "duplication" of resources, saying Dairy InSight and research provider Dexcel had "two sets of directors, CEOs, managers ... duplication of the communications material being sent out".

Dairy InSight's annual report shows a build-up of $16 million in retained earnings, which was also understood to be of concern to financially-stretched farmers.

Leeder said a variety of factors - such as milk production and levy income being higher than expected - had lead to the surplus. But it was all allocated now to research projects and he expected the retained earnings to be spent within a few years.

He said Dairy InSight would have an open mind about participating in the review but it must be independent and focused on farmers' best interests, "not what's best, say, necessarily for the processing companies, and there will be conflict about those two objectives".


R&D review

* The Fonterra Shareholders Council has announced a review of how dairy farmer levies are being used by sector R&D organisations to boost productivity.

* Led by former Dairy Board chairman Graham Fraser, the review comes ahead of a 2008 vote by farmers on whether to keep paying more than $40 million worth of annual levies.

* There is concern productivity-gain targets are not being met.