Chairman's Address

Chairman's Address

The world will always need food and fibre. Regardless of how this year has played out, there has been relentless demand for New Zealand’s primary sector to supply the world’s discerning consumers. Farmlands Co-operative has been there through pandemic, flood and drought, providing the supplies and services essential to support our country’s producers.

Rob Hewett

Chairman's Address

COVID-19 has reminded urban consumers of the value their rural cousins provide as they sought refuge in high quality food and produce in uncertain times. The opportunity to re-frame the narrative away from an urban rural divide – towards the new value opportunities for our primary sector as the “next normal” of global urban living and consuming evolves – will become more apparent in the months and years ahead. With the stories and brand impact of movements such as Te Taiao and regenerative agriculture resonating strongly with our shareholders’ customers, sector strategic thinking needs to seize this once-in-a-generation opportunity to cement and grow New Zealand’s position globally as a trusted producer of high quality, safe, nutritious and ethically produced food supporting high-quality healthful urban living.

Financial result announcement

For the 2019/20 year, we have recorded a Net Profit Before Tax and Rebates of $7.0 million. This result has been built on revenue of $1.1 billion – a number impacted considerably by both COVID-19 and challenging seasonal events. Our co-operative performed well in the first half of the year and despite being affected negatively by the global pandemic in the second half of the year, we were pleased with the planning and rapid decision making of management – and the support from many of our business partners – that resulted in us strengthening the business and positioning it to weather ongoing uncertainty, while remaining nimble for the year ahead.


The unpredictable nature of our trading year forced our focus squarely onto what we could control. Working capital debt was materially decreased, reducing total debt levels. This resulted from a concerted effort to improve working capital efficiency collaborating with our stakeholders, including reducing our cost base, with the Board of Directors challenging the management team as part of this to accelerate its strategy for driving value from our investment in the Braveheart Programme. Debt reduction, working capital efficiency and strengthening our core business through Braveheart remain an ongoing focus.


Shareholder equity and members’ interests currently sit at $130.7m, adjusted to reflect new IFRS 16 financial reporting guidelines. Total assets are $592.1m (up $100.8m) and our equity ratio currently sits at 22.1%.


Despite the significant financial impact of COVID-19, the co-operative continued paying monthly rebates, providing discounts to shareholders and Choices Rewards Points, with total value delivered for the year of $91.1m.


However, as COVID-19 remains a considerable source of uncertainty for the year ahead, and our result benefitted from Government wage subsidy support, the Board of Directors have decided it would not be appropriate to distribute an additional “final” or “Bonus” Rebate this year. While the Board knows this is disappointing for shareholders, I am sure we all appreciate the unique nature of the climate we have traded in for the second half of our financial year, the heightened uncertainty this presents to the company and the need accordingly to preserve cash as much as possible until the outlook improves.

Our new world – and the challenges we face

COVID-19’s ramifications will be felt by New Zealand businesses for years to come. Under the lockdown in April, Farmlands was classified as an essential service by the Ministry for Primary Industries. Despite responding swiftly to continue providing supplies and services to our shareholders in a way that complied  with lockdown conditions, our business still suffered significant revenue downturns during Alert Level 4.


I am proud of how the whole Farmlands team responded. The Board of Directors kept abreast of developments and decisions throughout with regular out-of-cycle Zoom meetings, with the safety and wellbeing of shareholders, staff, suppliers and communities prioritised above all else. Regular communication provided reassurance to all our stakeholders at a time when it was otherwise hard
to come by.


We acknowledge that uncertainty is part of running any business and that significant events can and will fundamentally continue to challenge our ability to discover and maintain enduring competitive advantage. The primary sector particularly has been dealing with increasing uncertainty over the last 3 years from many factors, including:
 

  • Environment-driven regulatory reform (impacting natural resource use – land, water and soil), influencing farm management practices and sector risk-reward profiles.
     

  • Regional regimes for freshwater management that will take years to unfold and resource.
     

  • Capital availability with tightening bank appetite, particularly for Dairy, and reduced access to offshore equity capital.
     

  • Labour and skills shortages.
     

  • Climate-change driven drought, flooding and the associated costs of mitigation.
     

  • Technology-driven disruption including alternative farming systems and products, digital routes to market, precision farming, and new forms of tracking, tracing and monitoring.
     

  • Volatility in export markets and commodity prices.

COVID-19 has introduced a whole new layer of uncertainty. It’s been called ‘unprecedented’ and viewed universally as a previously inconceivable level of risk affecting almost all businesses. Our initial concerns were for the supply side of our business i.e., access to adequate supplies of our core product lines from suppliers affected by global supply-chain disruption. Now, more than 6 months on, while that remains a risk we have also had to turn our focus to understanding and planning for demand-side disruption, such as the impacts for farmer-grower sentiment and incomes on longer-term trend changes noted above.


While commodity prices have performed well throughout COVID with discerning global consumers increasingly seeking out New Zealand food, it remains difficult for our exporters to predict structural offshore markets impacts over the next 12 to 18 months with confidence. Being nimble and continuing to actively seek out opportunities as the environment changes, often quickly, remains pivotal to their ongoing ability to adapt and thrive. There is no doubt that lost GDP, global unemployment increases (particularly in service industries), lower incomes, evolving consumer behaviours and innovations exploiting these trends are collectively accelerating change as the world adjusts to the so-called “next normal”. Our challenge is to position Farmlands effectively and quickly for both the opportunities and risks of this new environment.


In parallel there is also significant environmental law change. The recent Climate Change Response (Zero Carbon) Amendment Bill and its aim of net zero carbon emissions by 2050, including a separate target required for livestock-produced biogenic methane will force sweeping changes to on-farm and livestock management practices.

On 3rd September, new National Environmental Standards for Freshwater (as part of the National Policy Statement for Freshwater Management) took effect. These new water quality rules are part of a raft of new regulations that will come into force over the next 4 to 5 years.


These incrementally introduced rules will impact nitrogen caps, stock holding pads, land intensification, winter grazing, irrigation, fencing and farm planning, amongst other activities.


Farmlands have a unique opportunity to work closely with shareholders and the supply chain to develop solutions enabling shareholders to navigate this new world successfully and to thrive and grow sustainably.


This is the impetus for our revised Purpose: Grow Shareholder Success. This is our “North Star” guiding the decisions necessary to deliver what our shareholders require to adapt and thrive in their businesses. Clarity is critical. The scale of change is large. The adaptation necessary to succeed is formidable. Time is short.


Farmlands’ strategy and strategic planning process reflects this. High uncertainty has forced strategic time horizons down from the traditional 3 years to shorter spans with fewer, more targeted initiatives. The Board recently approved a 12-month strategic plan focused on aggressively targeting what we can control, mainly through strengthening our core business, while building durability around the areas we cannot. This will force us to prioritise the most pressing variables, while aligning our business to prepare for the changing requirements of our shareholders as they adjust for their evolving environments.


The Board of Directors has also approved an organisational structure change that aligns the business with delivering its strategic aims. Its main design aim is to enable the organisation to work more effectively as one, rather than as many separate business units. This allows Farmlands to better exploit the advantages of its new system through the Braveheart Programme, with the entire organisation aligned and focused on executing a compelling shareholder experience delivered through regional teams. It’s a big change, but one that will enable Farmlands to be more agile, more adaptable, and to Grow Shareholder Success. These changes have already been implemented and while change is always challenging for people, the more collaborative approach in our future way of working has been welcomed by all.


Our revised strategy also articulates a new mission – Harness our co-operative spirit to be first for New Zealand food and fibre inputs. This is our primary aim and reflects the collective faith of more than 72,000 farmers, growers and contractors in our ability to deliver the products and services that support their future success. And to that end, the next 12 months is about implementing and delivering the strategies that will strengthen our co-operative model, processes, key relationships and capability, particularly around data and digital.


Part of strengthening our operating model entailed a thorough review of our Card administration platform earlier in the year, and the annual fee Card holding members pay for that service. After many years of no change we increased this Membership Fee to better recover the actual cost of administering a Member Account and any associated Farmlands Cards today. This was discussed extensively by the Board following a management initiative to evaluate these costs, with the final decision based on ensuring both an appropriate recovery and that we maintain equitable treatment across all members. While our Membership Fee remains low relative to other comparable large organisations running card programmes, the change still elicited a passionate response from parts of our shareholder base. The Board strongly believes this annual fee is a small cost to access the considerable discounts and rebates available from both our own store network and the more than 7,000 outlets comprising our nationwide Card Partner network. Our average rebate per shareholder of $1,200 per Account is spread across nearly every input our shareholders need to manage their businesses. Our Card solution delivers considerable value and remains an asset to our shareholders in discounts and convenience and we are ambitious to grow these benefits further.

Community

A key part of Farmlands is taking the time to recognise and celebrate the people and communities that make our way of life so unique. We celebrate the many generations of your families that have worked your land through the Century Farm Awards. We bring big city attractions, like Super Rugby franchises, to New Zealand’s heartland via the Farmlands Cup. While the volume of events this year was restricted by COVID-19, Farmlands remained a constant at the A&P Shows, community events and local functions that were able to run as scheduled.


It is difficult to categorise a year that has no peers or markers in the past century. It is important to acknowledge the achievements in the shuffle of a year of external headlines. Our co-operative has accepted the challenge of not only maintaining relevance but thriving. Thank you for your continued support of your 100 percent New Zealand owned co-operative.


He waka eke noa. We’re all in this together.

Chairman acknowledgments

In my first year as Chairman of Farmlands Co-operative. I want to pay tribute to those that have contributed to our organisation’s success – and those that will take it into the future.


At the end of 2019, Lachie Johnstone stood down as Chairman of Farmlands. Lachie’s legacy as former Chair of Farmlands Trading Society – and inaugural Chairman of Farmlands Co-operative – cannot be understated. He was the leader of a co-operative movement that identified a national entity was the best way to derive more value for New Zealand’s farmers and growers. We are indebted to Lachie for his longstanding and insightful contribution.


Lachie was joined by Murray Donald in stepping down from the Board of Directors last year. Murray’s term with our co-operative was significant and his contribution to our Board table was appreciated.


At this year’s Director Election, Nikki Davies-Colley retired from the Farmlands Board. Nikki joined Farmlands as a shareholder in 2004, when our cooperative moved into Northland. The last remaining Director from the 2013 merger between Farmlands Trading Society and CRT Co-operative, Nikki has been a constant to all of those that remain at the table. We are grateful for her contribution and wish her all the best.


As we farewell departing Directors, we welcome new faces and fresh thinking. Sjoerd Post joined the Farmlands Board as our third Independent Director and his experience and commercial acumen are already serving us well. On behalf of the Board, I extend a warm welcome to Sjoerd and thank him for his contribution so far.


Your co-operative has continued its focus on developing governance potential with Kerry Worsnop joining us for a year as our third Board Observer. I thank Kerry for her participation and look forward to watching her governance career develop with great interest. The process continues, with Will Clarke joining us in August as our fourth Board Observer to develop his own governance capabilities. Both Will and Kerry are graduates of our “To The Core” governance development program that we run jointly with Silver Fern Farms. It has been gratifying to see other “To The Core” graduates going on to develop their own agrigovernance career. This is a clear indicator to the Board that our investment in this programme is
valued by our shareholders and is seen as a way for Farmlands to give back to our communities.

 

The Farmlands Leadership Team has performed admirably in the face of unique challenges this year and their leadership has been commendable. I would like to thank Peter Reidie and his team for their stewardship of our co-operative during a year of considerable change.


Within the Leadership Team, I would like to officially welcome Nick Baylis to Farmlands as our new Director - Marketing. Nick’s highly creative background and his track record of delivery is the perfect skill-set for our team.


I would like to thank all of our Farmlanders nationwide who have worked tirelessly through pandemic, natural disaster and considerable change to deliver services, supplies and solutions to our shareholders. All of this has been achieved while adapting to our new system – Braveheart. Their dedication and commitment is phenomenal and I applaud their efforts.


Finally, I would like to thank our shareholders, for continuing to support our mission to Harness the Farmlands Co-operative Spirit to be first for New Zealand food and fibre inputs. We never lose sight of who we are here for – and want to help grow your success.

Murray Donald

Lachie Johnstone

Nikki Davies-Colley

Sjoerd Post

Kerry Worsnop

Will Clarke

CEO Report

Governance