Key: Fonterra should pay on time
Prime Minister John Key says he believes Fonterra should be paying its suppliers on time.
He was asked this morning by Paul Henry about the co-operative's decision to extend payment times for some suppliers by around two months.
The Prime Minister told him: "We always look at these things closely. We think with Fonterra, like the Government, they should pay their bills on time."
Previously, suppliers would be paid around 30 days after they submitted their invoice. But suppliers have told Newshub they must now wait around 90 days to be paid. Some have also been asked to lower the amount they charge Fonterra.
"There can be an imbalance in power with any large purchaser, whether that is the Government or any other organisation," says Mr Key. "If they don't pay on time, then the trouble is that trickle-down effect is really bad and is most severely felt by small businesses who don't have that good an access to cashflow."
But the Prime Minister added that he had been told by two Fonterra directors that some of the reporting of the co-operative's treatment of its suppliers was inaccurate.
"Most of the media reports are not true."
Meanwhile, Waikato University professor of agribusiness Jacqueline Rowarth says farmers are concerned about the way Fonterra is treating the suppliers. Prof Rowarth says the farmers want their co-operative to be a good corporate citizen.
There have been suggestions that by cutting supply costs, Fonterra will be able to fund additional interest-free loans for farmers.
"This is ridiculous. Farmers do not want an interest-free loan," says Prof Rowarth. "They want Fonterra to do a good job as a corporate citizen, as a marketing and processing arm, for its good product."
Last week the dairy giant trimmed its forecast milk price for the current season to $3.90 per kilogram of milk solids. That is only five cents more than last season's payout of $3.85.
Fonterra also expects to pay a dividend to its shareholder famers of between 35 and 40 cents (after retaining part of the dividend for future investment). But the dividend will not help sharemilkers, who own their cows but not their land.
Dairy New Zealand estimates that farmers will need a payout of $5.25 to break even this season.
There are estimates that anywhere from 10 to 25 percent of farmers could lose their farms if they were to go through three bad seasons in a row.
The Prime Minister says "a lot of it is totally subjective and we don't really know".
"It is often 50-50 sharemilkers in particular who are quite stressed at the moment, have quite a lot of debt, the value of their herd has been going down in price. So I don't think it is as simple as saying it's 10, or 20, or 25 percent. We don't exactly know.
"What we do know is that banks are not in the habit of wanting to kick people off the land. It doesn't mean some people won't go under."
The Government has ruled out subsidies for farmers.
The Opposition has called for a crisis meeting. But Mr Key says "the tragedy of that is that I think it turns into a talkfest. It is not as if we don't know who the major players are."
He believes "getting them to work together farm by farm, sharemilker by sharemilker, is a far better way to go than getting them around a table in Wellington".
The Prime Minister agrees with Finance Minister Bill English that there will be no Government bailout for Fonterra.
"If it would put in money there, why wouldn't it put money into other small- to medium-sized businesses?"
Paul Henry asked Mr Key if he was worried about fire sales to offshore investors.
"I worry about the particular farmers who are in this situation. Some will be simply over-leveraged on the basis of a much higher payout. But overall we have got to have a bit of sympathy for our farmers because they have got to deal with a lot of volatility: volatility of the exchange rate, of commodity prices, of the weather conditions."
Prof Rowarth told Paul Henry she believes 25 percent of farmers could be at risk of going out of business.
"Certainly most of them are losing money this season."
Her concern is that the farms could be sold to offshore investors, who can borrow money at lower interest rates than are on offer here. She says that under the TPP our partner nations can buy land without having to seek the approval of the Overseas Investment Office.
"Some of our best land could not be in New Zealand hands. This is pretty desperate for New Zealand."
She says the low dairy prices are a "global phenomenon".
"Part of the plan from Fonterra has been this 'volume, value and velocity' strategy, and farmers have responded by increasing production. So you could say Fonterra's strategy has not been helpful here."
She says Fonterra needs to focus on efficiency, and there needs to be more interest rate cuts and more research and development.
Prof Rowarth says there also needs to be support in terms of food prices.
"When a farner loses a farm, it is not just a business -- it is the family home, it is their entire surroundings, the wellbeing that goes with it."