Supplying Fonterra at PKW

May 2013

A Maori Trust is Fonterra's largest supplier in Taranaki and is set for further growth

PKW Farms won the Ahuwhenua Trophy for Maori Dairy Farming Excellence in 2006. It is Taranaki’s largest dairy supplier to Fonterra. PKW has 14 dairy farms and three supporting drystock farms.

Hinerangi Raumati, a chartered accountant, is in her second year as chair and has been on the PKW board for six years. She lives in Auckland and works out of Te Awamutu, where she is an executive director of Te Wananga o Aotearoa. She has whakapapa links to Ngāti Mutunga through her father.

“Our strategy is about increasing our asset and actively managing the land we have” she says. The incorporation was formed 35 years ago, and for the first 20 years it was just a landlord. In the late 1990’s we started buying back leases and creating a dairy hub, and we have put sharemilkers on these dairy farms. At the moment we are actively farming 2700ha, which is quite an investment. There are another 300 perpetual leases still to be acquired.

As we became more active in the dairy industry we weren’t the people on the land doing the farming. We would rather be active landowners than passive landlords.

In the last year we piloted managing farms, and now have three managers on three farms. We are seeing if we can get a better return out of that financially. Employment is a long term strategy, and we have to build that capability as well. We are interested more in the best person being on the farm, and we can’t do that unless we are providing opportunities for people, so we are actively building capability with people.

We have a charitable trust which provides around $150,000 of education grants and scholarships a year to shareholders and their extended families. It is a challenge to get young ones interested in farming, particularly if they do not have a history of working on the land, but we have employed a number of farm managers who are from shareholder families, and a young Massey valuation student is interested in working for PKW.

What excites me about PKW’s dairy business is being part of NZ’s only truly multinational company; being part of a business with significant scale; and getting good returns out of that business.

And we are showing leadership where we can for dairying in Taranaki. For example we set ourselves targets for riparian planting, and we used new technology in managing effluent and in the dairy shed.”

Dion Tuuta, chief executive of PKW says they are Fonterra’s largest supplier in Taranaki, and only farming around 10% of our landbase. The remaining 90% remains subject to the Maori Reserved Lands Act 1955. This legislation means that the majority of our land is subject to perpetual leases created in the 19th century.

The right to use and control the land is vested in the lessee until such time as PKW purchases the lease at market value. PKW can have no say on what happens to the land until it acquires the lease. Approximately 18000 ha of PKW land remains subject to perpetual lease.

The lessee can sell to whoever they like, and when the deal goes unconditional, PKW has the first option to buy the lease at the terms and conditions they have set with the prospective purchaser.

He says “PKW only has 20 working days in which to do due diligence, which is quite difficult when you consider the investment involved. So we have to evaluate multi-million dollar investments within a very short period of time. We do a lot of work to understand the portfolio to minimize the assessment time.

Since 1997 PKW has acquired 50 leases and about 800ha of freehold land. We have a huge amount of potential to grow with 14,000ha of our land still leased and in dairying.

The Tempsky Road farm is the first dairy unit we’ve acquired in five years. By the end of the 2012/13 season we will have two other drystock units coming back under our control. We are continually evaluating opportunities.

We look to take back leases where it makes economic sense to do so. There is no point in taking back a lease unless it makes an economic return and we can manage the land ourselves. We have to react when the lessee wants to sell, so it is a case of needing to be ready when the right opportunity comes up.

We have a good relationship with the West Coast Lessee’s Association, which represents the remaining lessees. There is a rent review every seven years, and we try and take a collegial approach. Both parties appoint independent valuers, and both agree to be bound by that.

The change PKW is making is linked back to the fact that the perpetual nature of the leases over PKW’s land denied the owners opportunity to work their land themselves. Moving to actively manage the land is a step towards realising that ambition.

We are trying to grow and develop young Taranaki Maori farmers by giving young people who show promise an opportunity to show what they are worth. They have to be the best person for the job.

Of our three managed units, two of them are being managed by members of the shareholding whanau. Both were appointed on merit: Robert Walden and Dallas McLean.

The idea of active management is to get our people back onto their land and become role models for Maori within the industry. We are showing leadership where we can to grow that pool of talent.

Shareholders expect an annual dividend and have the opportunity to apply for a scholarship through our charitable trust. From my perspective employment is one of the more tangible benefits we can give to our people – for those who have the vision, desire and ability to work in the industry.

There’s a range of opportunities on our farms from managers to potential contract milkers, variable order and some 50/50 sharemilkers – through to working in our corporate office.

Potentially some of our people could come out the other side and buy their own farms if that is what they want to do – that is part of the dream too.

I have a personal vision of a rangatahi (young person) at school deciding they wanted to become a PKW farmer. They would become a manager, then grow through the sharemilking system to become a 50/50 sharemilker, stand for the board, get elected, maybe consider standing for Fonterra and get elected to the Fonterra board. One of our directors David McLeod is on the Fonterra board.

We work with a range of education providers including EnviroSchools and Taratahi. We encourage our younger Taranaki Maori considering an agricultural career to go there. We use AgITO and we have a dedicated agricultural scholarship with Ravensdown for $5000 a year for three years. We are presently trialing how we can develop closer relationships with Taranaki High Schools such as Opunake High.

While we supply Fonterra, we also support what Miraka are doing and wish them all the best. Being in control of your own destiny like that is very powerful. That is tino rangatiratanga in action. Moving up the value chain is important – and we have to have higher aspirations for ourselves rather than just being commodity producers.

Maori across the nation are all looking at what opportunities might exist further up the value chain. Fonterra is a fantastic company but who knows what the future might bring if we grow big enough. We have a lot of capital tied up in Fonterra shares which we could be using to acquire back the leases over our land.

We are on track to produce around three million kg of milksolids this year – weather dependent.

At Farm 7, this new $1.3 million cowshed is going to be the benchmark for our new developments. Some people have said it is the best cowshed they have ever seen. I am not a farmer but I have to admit I am pleased with the design and layout. The shed has a good wairua, the cows feel calm.

We are looking at constructing two more in the next 12 to 18 months as we upgrade our existing farms.

A million dollars is a huge amount of money, and from the incorporation’s point of view, we are making sure we are getting the best out of our investment.

Farm 7 is 190ha effective and 210ha total, and made up from the amalgamation of four different PKW lease blocks. It has a new 60 bail rotary shed built by Ko Design and has a Waikato milking plant. Unusually, the dairy has a Kevlar platform, one of the first of these 60 bail platforms to be built. It is only 20% the weight of a concrete platform. Shane Miles, dairy operations manager says,

“We wanted to try it and see how it would perform. There should be a lot less pressure on the running gear, and it is a lot quieter than a conventional shed. The cows stand on rubber mats; potentially there should be less feet problems.”

The farm has been completely refenced and rewatered from when PKW took the blocks over progressively from March 1. A new effluent system includes a Hynds Pipe Systems concrete tank holding a million litres of storage, which is 20-30 days of storage. Shane says “We have a traditional travelling irrigator, and we have put in a Farmworks effluent management system with GPS technology. This keeps the pumping equipment and travelling irrigator in contact, and if the irrigator stops moving, it will automatically shut the pump down. It’s a failsafe system and is used to irrigate 45ha. We know how much volume of effluent is pumping, and we can test the effluent for nutrients. We have NPK maps on how much nutrient is going on each area, and we can look at which zones are getting hot.

This herd came together from four different sources, and this year we wintered 570 with the idea that we would keep it stocked at three cows/ha this first year. We have one 10ha block in turnips, and 40ha of the farm came out of maize and was regressed last autumn. Although there is a dry spell at the moment we are on track to produce 230,000kgMS, which is 1200kgMS/ha.

This farm has an in-shed feeding system, which we use strategically, feeding biscuit meal and palm kernel extract (PKE) in spring, also some molasses. At the moment the cows are being fed PKE and pasture silage.

Our objective with the farm is to milk 650 cows next season, all of which are spring calving. If we can maintain production of 400kgMS/cow we will reach the 260,000kgMS target. I think this farm can produce 1350kgMS/ha and 400kgMS/cow.

We want to keep this system relatively simple. This is the first significant development PKW have done in the last five years. It is a good benchmark for what we do down the track.

It is exciting; there is huge potential for sustainable growth – both financially and environmentally.

Environmental work is part of our conversion process: we completed a riparian plan with the Taranaki Regional Council before we took it over. There had been no riparian work done on the farm before, and we fenced all the waterways and planted natives. Over time this will be a focal point of the farm.”