FONTERRA LOOKED MEAN SPIRITED

There was a bit of a taint to Fonterras moolah marketing campaign that TV3 followed up on tonight. Now its easy to see that they followed the letter of the law when it came down to the promotion but the spirit - the intent of the campaign wasn't. It is pretty easy to see that the competition was badly designed and manipulated. So the downside for Fonterra is that they will have left a bad taste with the budding milk consumers. The downside for the consumers is that Fonterra pretty much dominates the market so its not like a brand switch will do much damage.

The sad fact of this this saga is that Fonterra needs to position itself as the heart of New Zealands primary sector. Its the company we all want to be proud of. It needs to win the support of kiwi kids for the future.
This campaign failed the company and the country dismally on that count.

THERES A HOLE IN MY BUCKET ....Dear Henry

Every now and then you come across something that someone has written that requires a very wide audience. This essay by Brent Wheeler should be required reading for everyone who has a stake in our economy.

Dairy Farmers are about to be asked to make some decisions about the future of Fonterra.

The farmers have always been scared about outside investment worrying that it would mean they would lose control.

Brent has done a very neat dissection of the issue. It's a brave article. Journalists should add Wheeler to their list of "go to" people for comment as the round of farmers meetings are rolled out across the country.

Take this pithy take on the robustness of the model. He contends that it only exists by state coercion through legislation.

No one else needs or gets that hand up. If this model is so robust why is force needed? This is anti smacking stuff for farmers. A large number of nursery rhymes about collective behaviour, weak selling and such like have circulated for years while the evidence says, unsurprisingly, that these people are price takers not price setters and no amount of collusion can stop competition for long - ask OPEC.

He has concerns about the fact that Fonterra in its current form is exposed on many fronts and is by and large run via a political process.

And he scoffs at the fact that farmers are being forced to accept high risk and paying top dollar for an equity stake.

Third, "their" company is asking them to invest at a cost of equity about which little is known other than the fact that it's limited liquidity, its rules around ownership and the dependence of the model on state imposed monopoly all combine to drive risk higher than standard levels. Paying over the top for equity in a company you have a compulsory sales arrangement with in which the company sets the price is, at the very least, bizarre.

He thinks that the whole set up is Schizoid

Thus capital comes and goes with redemption and growth fighting one another in a process which never sees a stable capital structure. The value of permanent capital was recognised by the Dutch and the English in the middle of the 17th century.

Just what price is "enough" for the rights to be a part of all this? We don't know but may be about to find out. What is for sure is that it's pointless looking for objective answers from farmer politicians who have everything to lose and nothing to gain.

And why should we be asking questions?

Well that's simple says Wheeler.

It would be useful if a few more critics turned some serious spotlight on the political roadshows to come - after all, that monopoly is granted by taxpayers - not farmers, not by suppliers to Fonterra, not by Fonterra management and certainly not by farmer politicians. Taxpayers too are owed some accountability.

Brent has mapped out some of the key areas for debate. We will return to Eye2theLongRun

as the issue progresses.

SENSIBLE ANALYSIS ON FONTERRA

Finally, we get a good meaty piece on the Fonterra accounts and half year announcement from Fran O'Sullivan in the NZ Herald. She also reinforces the view of the NBR the the PR around the half year announcement was very badly handled.

Fran leads with the fact that there has been a drop in revenue. And she focused in on the large milk mountains that Fonterra has warehoused around the country . But overall her tone is cautiously optimistic - noting that Ferrier has managed a reduction in operating expenses and that despite all the payout to farmers has been maintained at $5.10.

SCARY DATA FROM THE AGRICULTURE SECTOR

Agridata has a ncie round up of the changes in rural circumstances.

It does not make for good reading.

WHEY LESS PROFIT FOR DAIRY INDUSTRY

This from The Herald - It was expected but hell can we have some good news please?

MELAMINE SCANDAL GROWS MORE COMPLEX

So Tatua gets banned by Korea because of minute traces of melmine in milk products , but is this their first brush with the impact of Melamine?

This from the Herald

We here at Roarprawn aren't too sure.

Homepaddock has more

VERY DISTURBING REVELATIONS FROM HOMEPADDOCK

Homepaddock has some extremely disturbing revelations

Read Here

This is a very big scandal... and if this is true, and we at Roarprawn see no reason to doubt it, it will lessen the impact on Fonterra.

But with the continued censorship by China, will the true facts ever be known?

SHONKY SURVEY GOOD EXAMPLE OF PR DARK ARTS

The NZ Herald has followed Stuff and been sucked in by Fonterras competitors. The San Lu milk scandal is as bad as it gets but this story which appeared in Stuff yesterday , raised the ire of Roarprawn. Two clicks to the Sinlogie website showed that they do a hell of a lot of work for a very big dairy exporter in USA. ( Probably Dairy America)

This is why PR gets a bad name - this is a classic example of the dark arts, and at a time when New Zealand and Fonterra need informed media coverage we get this pap. Here's what the Herald had this morning.

More than half of Chinese consumers have less trust in New Zealand dairy produce because of the poisonous-milk powder crisis engulfing Fonterra, says a survey by Sinogie Consulting.

This is the worrying bit.

Fonterra's 43 per cent-owned Chinese dairy company San Lu is one of 22 firms caught up in the scandal over the industrial chemical melamine being added to watered-down milk to boost apparent protein levels. The contamination has made tens of thousands of infants ill and killed at least four.

Sinogie, a Hong Kong company, commissioned a survey of 300 shoppers in Beijing, Shanghai and Guangzhou between September 22 and 25 and found 51.2 per cent had less trust in New Zealand dairy produce.

Wow that's a big survey.!

Sinogie chief executive Bruce McLaughlin was surprised the figure was not higher.

"What it suggests to me is that people are still seeing this as a San Lu problem."

Suggests???! A hint perhaps - and a nice time for a another brand to infuse the market.

There was not much damage to Fonterra at present but that could change in the long term.

"I would say that Fonterra has to keep its head very low in China at the moment. I think if they start shouting too loudly about the Chinese authorities being to blame, then the Chinese authorities will react and it won't be pretty."

More than half the respondents (56.2 per cent) said they had been buying more foreign-branded dairy produce since the scandal broke, while 79.8 per cent were worried that all brands of infant formula, domestic and foreign, could be contaminated.

New Zealand came second behind the European Union when people were asked to rank food from markets for trustworthiness.

"I think New Zealand itself enjoys such a strong brand that while Fonterra is obviously probably your biggest food company, I think people will still have a lot of faith in other New Zealand brands."

Mr McLaughlin said he had seen many companies run into difficulty in China.

"I think that people are blinded by this idea of mysterious China still. Because of that they don't think that they should go in with the same level of caution [as if] investing in Australia or America or somewhere like that."

A Fonterra spokesman said the company approached its investment in San Lu very cautiously.

"Fonterra has been doing business in China for over 20 years so the company was well aware of not just the business but also the wider political and cultural complexities of operating as a foreign company in China."

Fonterra undertook very deliberate and careful due diligence before making the decision to invest, he said.

Its strategy was to progressively upgrade operations and it had also begun a plan to introduce better-quality milk to the supply chain by investing in its first farm in China.

"However, in moving to steadily improve San Lu's quality-control systems, it was impractical to be in a position to protect 100 per cent against all risks to San Lu's supply chain such as a deliberate criminal contamination

Journalists need to be very careful of running stories like this - this has been picked up everywhere as people want to know more about this issue. But instead they are being given at worse a false picture nicely planted by a competitor of New Zealand dairy interests .

Fonterra milk scandal sours

Bummer -I was prepared to give Fonterra the benefit of the doubt, Strangers in a
Strange land and all that - but this latest revelation about bacterial contamination is bad and as MACDOCTOR points out - its still seems that the directors dont know or cant find out what is going on ...

Fonterra’s China dream is finished.

Future investors must learn Fonterra’s lesson well. When you are dealing with an authoritarian society where face-saving is the norm, you must expect that mistakes and bad news will always be covered up. This is not to say that the Chinese are dishonest, far from it, they just have away of handling failure that confuses us. The type of transparency that you see in New Zealand, where even the Leader of the Opposition fronts up and apologises, is one that is unique to the West. Trade with China is certainly possible. Participation in joint ventures will require some work on both of our parts.

Homepaddock also has a good take on this issue...

As does Inquiring Mind who says SanLu is going cheap.


And I will now admit their PR sucks.

Fonterra the heros in growing tainted milk scandal?

The bigger the milk scandal gets the more that people will realise that Fonterra raised this issue and got China to act. - now over 20 companies are involved and the milk has been sent to many countries.

this from the Herald

The snowballing crisis was "gut-wrenching", Mr Ferrier said.
Fonterra was not counting the cost of the crisis on its 43 per cent stake in the Chinese company San Lu, which made the contaminated products.
"We're not sitting here counting money, we're sitting here just making sure we do the right thing.
"Fonterra wants to do whatever it can to help the situation in China.
"Right now, we understand the Chinese Government has stepped in and is looking after the health of the children.
"We will see ... if there's something else we can do."

Milk scandal deepens

Fonterra blames 'criminal contamination' from Stuff



6244 kids sick, 158 very sick, and three dead.


"Its as bad as it gets in food companies" - says Ferrier CE of Fonterra

Lets be hoped that for the kids sake its gets sorted quickly.

And yes for Fonterra, the calcium backbone of our economy, sake as well.