Affco Milks the Dairy Potential

Federated Farmers president Charlie Pedersen responded to news this week of a potential new player on the dairy scene with a pithy observation: “You wouldn’t say that Affco has been widely successful as a meat company”.

That comment about a company which boasts exports of more than 150,000 tonnes of meat a year to 74 countries was a bit harsh. Affco, the only meat company listed on the stock exchange, has a turnover of about $1 billion and employs staff at 10 plants, including one in the South Island.

Its announcement this week that it planned to diversify and process dairy products was a major — and welcome — surprise. Affco plans to be up and running next year with four factories, including one at Horotiu. Fonterra chief executive Andrew Ferrier calls Affco’s proposal a strong vote of confidence in the future of the dairy industry. Those views are echoed by other dairy companies which are predicting a spike in commodity prices thanks to international demand.

But it is also a challenge to Fonterra. Lincoln University professor of farm management and agribusiness Keith Woodford says the arrival of new players like Affco on the dairy market could take up to seven per cent of Fonterra’s business.

There is clear scope for an expansion of the dairy market. In the South Waikato pine forests are already making way for farms, despite environmental concerns. Last month South Waikato Mayor Neil Sinclair pointed to the potential economic benefits to his region and spoke of his concern that the district was being asked to bear the brunt of providing a carbon sink for the country. In Southland, poor lamb prices have also encouraged a switch to dairying.

The new industry players also provide existing Fonterra suppliers with an opportunity to free up capital rather than keep it invested in Fonterra shares. Affco also says the launch of its new company Dairy Trust will give investors other than dairy farmers a chance to buy into the dairy industry.

Affco chairman Sam Lewis claims the company has not talked to any farmers about seeking support yet. But he says: “It does mean farmers who want to provide milk will not have to own shares in the company, as they do in Fonterra.”

Affco thinks it will be attractive to farmers who have hundreds of thousands, sometimes millions of dollars, tied up in shares in the dairy co-operative. That appears likely.

The great majority of dairy farmers in New Zealand will, however, remain loyal to Fonterra and are optimistic. The latest Rabobank- Nielsen rural confidence survey shows 43 per cent of the country’s farmers expect the rural economy to worsen over the next year — but only seven per cent of dairy farmers think that way. Well might they be happy. With the arrival of Affco on the dairy scene farmers will have a brighter outlook — and a greater choice.

(c) 2007 Waikato Times. Provided by ProQuest Information and Learning. All rights Reserved.