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Archive for August, 2015

In the future questions can be answered (but not today)

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The coaches have made their choices, the plane and hotels are booked, the oppositions scrutinized and the play sheets devised, learnt and eaten for breakfast.  The pundits are weighing the odds, the analysts are comparing numbers, the families have crossed their fingers Will we win,  everyone is asking? Sounds a bit like sheep dairying to me.

In the last couple of weeks I’ve  been taking  calls and  emails  from people keen to invest in sheep dairying. There was John from Auckland who had his eye on a sheep and beef   farm in Northland  as a potential  conversion. And a couple from the Wairarapa thinking of dropping the ‘b’ on their small Fonterra-supply bovine operation.  And we’re working  with three groups of final year Massey Agri-Science students on a sheep milk ‘scale up’ project. The students have to come up with a plan  that would  move a  part-time 100-ewe sheep milking operation in the Hawkes Bay to something  that  would produced a $100k a year income for the family involved. Easy right? Not so much.

John was ringing because ‘the boss’, aka his wife, wanted to know if  his proposed  $2m spend-up  would stop her buying a new coat for next winter or not. He was joking (kinda).  But the boss had a point. What kind of return was possible from milking sheep?   The Wairarapaians wanted us to send them a  spreadsheet with an answer to that same question:

‘Are you able to provide us with some information re milking sheep, stocking rates, production, feed             inputs, cost of stock, share price if applicable etc. We are just looking to see if the numbers stack up             at this stage.’

One of the student groups is going in this direction –  doing a (very worthy) farm budget. Another  is doing  a SWOT analysis, and the third, interestingly, is  doing an ownership analysis. This is  encouraging – different forms of analysis (there’s not enough of it and there’s certainly not enough of it in dairy – with or without a ‘b’) asking different questions driven by different assumptions  and different desires.

I’m not trying to pour cold water on people  asking the  good and proper numerical question about sheep dairying:  ‘what kind of returns can we expect if we  invest, convert or scale up’,  is an essential question. But I worry that the answer to this question, the magic number question   (is it 5, 10, 15 or 20 percent) is not the answer those asking are  looking for. Do they really want to know the answer to that question , because the short answer to the numerical question is  there is  no short  answer – which may be exactually what some, such as the ‘boss’,  wanted to hear.

Of course there are numbers and if we just look on-farm then they are pretty disappinting.  If we assume  $2 a litre and 20 percent solids then we are only looking at $10 kg/ms. At  a 200 day lactation and just on a litre a day per ewe, then, you might as well go back to meat and wool or  keep the money in the bank (see Lucy Griffith’s financials in her Nuffield Report ‘A Business Plan for the NZ Sheep Dairy Industry). And that’s about where we are at on average at least. And add to that  the rather fringe nature and uncertainty  of  local and international markets for sheep milk  products and even  investing in the Chinese share market start to look like a half way sensible idea. But in asking that question only, we are looking in the wrong direction.

What those in the industry are doing (and have been doing  – Kingsmeade particularly)  is building positions in markets beyond the farm gate ( and not waiting for that market to emerge already formed). And they are looking beyond income to assets and in most cases forward to the next  generations – even with Landcorp and SLC.  Now Landcorp’s partner SLC  will want to cash out some years down the track with a very good return on the cash they have committed. And Landcorp itself will be looking to show  the Minister of Finance  a commercial return from the  Wairekei pastoral site long before it  goes back to the owners. Sheep dairying may well be  the acclaimed  feature of that plan (an asset in other words). And if we look  into the Wairekei Pastoral site,  you see intergenerational family business at its core (an intergenerational nest egg). Go around  Spring Sheep Dairy and you get to the  Gunsons and the  Kings and the Clairmonts and perhaps even the Neylons and of course the Konuis of  Waituhi Kuratau Trust. You realize that they are not really in based on the numbers. They are  in for the  position, for the assets and  for their  ‘team’ .

They’ve  made their choices, done their sums, scrutinized their operations and their oppositions and  devising their ‘play sheets’. They don’t have the hopes of a nation on their shoulders,  but they do feel past and future generations looking over their shoulders.So when we ask questions about ‘the numbers’, let’s be clear why are we actually asking. There are some questions that can only really be answered in the future and  ‘will we win’ is one of them.

Land, labour, love and institutional battles

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A piece of land for some is never just dirt,  money and dead labour. As the dairy crisis deepens and the academics,  consultants and  journalists rush forward to offer some sweetly massaged messaging they will inevitable be required to forget the institutional forms that power  them, and the wider and deeper struggle between such forms  in which they are embedded. In the case of ‘big  dairy’ this is between finance capital and the patriarchal family (and its ally the cooperative). This is a  struggle that’s been going on, around Eltham, Taranaki (picture) for awhile and famously since Chew Chong built his factories and then went bust (1).

So are we looking at  a  long goodbye to Fonterra? Organizations are but the working machinery of the dominant institutional form,  and the uneasy  alliance between what we might call the patriarchal family cooperative and managerial class increasingly doing the bidding of finance capital is a fascinating one. Currently, I think the best the family-cooperative could look to do is see off  Fonterra’s  Auckland-based NZX- schmoozing managerial cadre. What the family-cooperative wants is not  managers in glass offices in  Auckland lunching with stock brokers and investment company bosses, but sales manager on the ground in Seoul, Shanghai, Dubai, and Caracas. 

At what point did  Fonterra’s Auckland set  become the carriers of the desires of the institutional form of finance capital? Sometime during the mid 2000s. So they have ten years of unravelling to do and they are  very unlikely to hand control back to the  family cooperative  given the reputational credits they have uplifted from their  Auckland peers  – as the supposed leaders of the country’s largest company.  So they will fight.   The withdrawal of volume from the global dairy auction last week so as to push the price up by 15 percent is a neat first shot  (so clever and yet such an obvious ploy).

But the reputations that leaders chase are fantasies, or built around fantasy (which is what institutional forms offer and provide).We are never  leaders. We are carriers, and combatants on behalf of  particular institutional arrangements, whose depth and historicity is both hidden and surprising. There are  particular local hybrid forms of course, but institutional forms pay homage to deep historical  rivers of action and practices. The family-cooperative  is ultimately an alliance built around the struggle  and long demise of aristocratic  feudalism. Capitalism, as the desires of an accumulating patriarch, as Rob Bryer  (2) and others have shown,  emerges in the form of owner-operator UK farmer whose descendant is the  Pakeha farmer-settler of mid to late 19th Century NZ. It’s hard to believe that the humble family farmer doing his stock reconciliations was the historic progenitor of industrial capitalism. The family-cooperative,  which takes the organizational form of a Fonterra in our case, is however  a hybrid of this original form with some of the tensions from this birth on-board. Particularly when it  confronts ‘money’  (in NZX, investment companies and  Australian banks in our case).

So what then of Sheep Dairying as we watch the bovine battle unfold? Things could go either way. The dominant organizational form will point to the acquisitive institution that is  guiding action. Will sheep dairying be a group of cooperating family  farmers,   multiplied by a factor of 10 perhaps collectively selling their products off shore? Possibly? Or will it be a group of  finance capital-led entities cooperating only  to the point that they agree not don’t fight each other in the same market (or at least until such entities might centralized).   Hard to say at this point.

And what then of industry associations and cross-business collectivities of one sort or another? What is their  role in this drama? Surely they are  just the handmaidens of the ‘coming to dominant’ institutional form?  It is worth asking for which institutional form they are doing the  bidding? Which  ‘fantasy canopy’  or imaginary ‘night sky’, are they painting? Whose future are they imagining? Which past are they narrating,  through which rituals with what emotional effect?   Institutions! You cannot but  love these  seductive and secretive  arrangements.  But which one are we loving most?

(1) Chew Chong biography

(2). The Genesis of the capitalist farmer ‘

 

Ewe Can Dairy A Massey Site