Stephen Ward: Royal airs match royal pay

A "royal" we? Was it a slip or is Fonterra's Canadian CEO Andrew Ferrier taking on monarchical airs?

In a letter answering a complaint about his apparent $300,000 pay rise to $2.9 million, Ferrier told a Taranaki sharemilker: "Please rest assured we and our management team will work tirelessly to improve returns to you."

However, to be fair, the rest of the letter had a liberal sprinkling of "I" references throughout. And Ferrier said that next time he was in Taranaki he would make a point of catching up with the sharemilker to discuss matters further.

Another section of Ferrier's letter makes the point that farmer payout last season would have been $6.15/kg of milk solids instead of $4.10/kg if the exchange rate had been the same as in 2001-02. Ferrier said this was an indication of the underlying performance of the business.

The latest annual report shows the average conversion rate for forex earnings was US44c in 2001-02 compared with US66c last season.

It is interesting, then, that payout jumped from $4.25/kg in 2003-04 to $4.59/kg the next year, even though the average conversion rate went from US52c to US61c. That improvement - despite a stronger kiwi - may reflect other factors such as commodity prices or cost savings. But it also shows that comparisons are not always that straight-forward.

Get it together, fellas

A feeling that dairy sector R&D experts are operating in "silos" is understood to be one of the drivers for the newly announced review of how effectively $27 million of farmer research levies are being used to boost productivity.

Interesting, then, that the Fonterra Shareholders Council - which announced the review - discussed the need for it with dairy co-ops Fonterra, Tatua and Westland but not key research funder Dairy InSight. Dairy InSight learned of the review only an hour ahead of a news release, with its chairman, Doug Leeder, describing it as a fait accompli.

Queried on not having brought Dairy InSight into the loop earlier, council chairman John Monaghan said organisations such as Dairy InSight would now have a chance to make their views known.

But the lack of consultation is perhaps not the best way to have everyone singing harmoniously from the same songsheet come announcement time.

In another reflection of industry tensions, research provider Dexcel and Fonterra have suspended a co-operation agreement until the review is completed, an acknowledgement of the rumbles in the industry about whether the agreement compromises Dexcel's independence.

While insisting that it is independent, Dexcel's chairman, Jim van der Poel - also a Fonterra director - felt it needed to be seen to be independent during the review process. Van der Poel said he had mechanisms in place to manage any conflicts of interest between his Dexcel and Fonterra roles.

Leeder, meanwhile, said that he wanted any review to focus on farmers' best interests rather than on the dairy companies' interests.

Of course, Fonterra, Tatua and Westland are co-ops and one might think their interests were inseparable from those of farmers. But Leeder said they did not always align. Evidence for his view is backed by the recent farmer protests over Fonterra's salary increase for its CEO and directors - clear signs that the relationship between management and suppliers isn't always as smooth as the proverbial baby's posterior.

There is already extensive intra-industry co-operation in dairy R&D, but there are clearly also niggles in the minds of many about whether everything is working as well as it could.

As review head Graham Fraser has pointed out, boosting productivity is crucial if New Zealand is to compete effectively in global markets.

It is that big picture that everyone needs to keep focused on during the review process, not self-interest, patch protection or personality politics.

Farmer uptake

One of the issues floating around for dairy sector R&D providers is that farmers - for a range of reasons - do not always take up productivity-enhancing technology or ideas.

But at Dexcel's AGM last week, van der Poel said the organisation had stepped up the number of consultation visits to farmers, with 7500 direct contacts in the past three months.

"The outcome we have achieved from this increased activity is more farmers are attending specialist events and more farmers are telling us they are gaining value from these interactions."

That is another clear indication that good- quality communication is the name of the game.

Smart food

As the dairy sector announced the R&D review, Crop & Food Research's chief executive and Food & Beverage Taskforce member, Paul Tocker, was beating the "smart food" drum.

Smart foods are high-value, "functional" foods that have scientific support for their purported benefits.

The functional food, or nutraceutical, market was one of the fastest-growing segments of the global food market, Tocker said.

"Unless we actually innovate more and add more smart foods to our suite of products, we're going to get left behind."

For New Zealand to succeed further in that market required a co-ordinated effort from the food and beverage sector and support from the Government.

The taskforce report supported the development of a national innovative food research strategy.

Tocker and fellow chief executives at HortResearch and AgResearch are working on the science capability to support this strategy.

The taskforce also supported development of regional food research centres and Tocker said Crop & Food was backing an application for a food innovation centre at the old Islington freezing works site near Christchurch.

Tocker said New Zealand had significant capacity to develop smart foods in the laboratory but needed more centres where manufacturing techniques could be proven before full-scale processing facilities were established.

State funding was needed to help to establish these centres and the Government was considering how much it would contribute.