nz farming systems Uruguay

[Snoopy]

From www.olamgroup.com

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New Zealand Farming Systems Uruguay To Invest US$80.0M In New Dairy Processing Facility -

Olam International Limited (“Olam’’), a leading agri-business operating across the value chain in 65 countries, announced today that its wholly owned dairy farming subsidiary New Zealand Farming Systems Uruguay (“NZFSU”) will be investing US$80.0 million to establish a new dairy processing facility in the central region of Uruguay, accessible to its farms.

The project enables Olam to fully integrate its dairy supply chain and realise the full potential of NZFSU’s dairy farming operation by leveraging its global trading and distribution network. The greenfield dairy processing facility will initially have a capacity to process 600,000 litres per day, going up to one million litres of milk per day – the level of milk production that NZFSU dairy farms are expected to reach at steady state.

Olam’s Managing Director and Global Head for Dairy, Coffee and Commodity Financial Services, Vivek Verma said: “The proposed dairy processing investment is part of our strategy for NZFSU to realise the full value of dairy farming. The processing plant will be uniquely positioned and differentiated with the control on milk supply through captive milk production and well-placed to meet our customers’ call for high quality dairy products with complete traceability and stringent food safety standards.”

The facility will produce a combination of dairy products, including whole milk powder, skim milk powder and butter, which will be exported to key markets where Olam currently supplies to, including China, Russia, Middle East, Eastern Europe and Africa, as well as neighbouring countries, such as Brazil, Paraguay and Venezuela.

Olam’s Executive Director of Finance and Business Development A. Shekhar said: “Our Dairy business had restructured its supply chain operations as well as optimised its balance sheet, freeing up resources to focus on margin accretive projects. In time to come, if we execute this well, the expansion of NZFSU into midstream processing will be a prized integrated farming and processing model that will truly leverage Uruguay’s comparative advantages and unlock the full intrinsic value of the assets we have built in this business.”

Approximately US$5.0 million of the investment will be allocated for the purchase of a 94.0% stake in BG Industria Láctea S.A., a company based in Uruguay, in order to acquire the land, licences and permits required for the construction of the plant. The dairy processing plant is expected to commence operations in 2017.

From June 2015 Quarterly Report:

Given the continued underperformance of the Dairy farming operations in Uruguay, Olam has decided to further restructure this business and defer its planned processing investment there. These actions are likely to result in a one-time restructuring cost in H2 2015 (July - December 2015)

SNOOPY

PS More detail from the press conference on the June 2015 quarter:

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(Previous quarter prelude: The upstream business in Uruguay is the one that is dragging the segment down
and that we see will have continuing profitability issues for the remainder of this financial year, I'm talking about the new financial year going until December. Various measures are being taken to arrest the decline and recover the operation and that you will start seeing the results only from the following year. So we've submitted and got approval for a two year revival plan for the Uruguay dairy farming operation that will include 2015 and 2016 which would be the turnaround year for us as far as Uruguay dairy farming operations are concerned)

Coming to dairy, I think there we have two issues. One is the operating performance of Uruguay that we have talked about in the past. We've been talking about that over the last few quarters. We had made various changes in terms of the operating structure, which again I highlighted in my last quarterly briefing, and we have seen improvements in May and June in our operating performance and in yield and productivity.

But in the last two months, as most of you would be aware, dairy prices have taken a hammering. They were bearish for the last over nine months, but in the last two months they have taken a further steep fall. And current dairy prices and the outlook of dairy prices remains very, very weak, so much so that even in a place like New Zealand, which is the most cost-effective producer of milk, there is large scale culling being contemplated. So clearly we have moved up the changes we are making in Uruguay beyond the operating aspects that we were focused on. We are now taking some far deeper cuts in terms of restructuring the number of farms, bringing down the number of farms, rationalizing our herd again, both by a mix of culling as well as moving herds into more centralized farms, and also cutting out due to that some parts of the infrastructure and overhead costs that we have. This is all happening as we speak. We believe and we want to call this out right upfront that in Q3 and Q4 there will be some one-off restructuring costs that we will have to take. It is still not something that -- we are working on it and hopefully by the next time we meet for the next quarterly briefing we'll have a better sense.

But what we want to do -- we don't see the current bearishness in milk prices. It's cyclical in some ways because of excess supply and the fall-off in demand, but we don't think this will correct in the next six to nine months. And we want to take some actions ahead of the curve, both to address the operating bleed in Uruguay as well as rationalize and position ourselves when the prices do pick up in the early part of next year. So that's potentially had, has had, a big impact for the first half as well as a continuing impact for Q3 and Q4, which we are really focused on. And I want to just assure you that the plan that we are drawing out right now, which we'll be in a better position to announce when we meet next quarter will hopefully address both the bleed as well as the long-term business model in our participation in Uruguay.
I'd also like to point out that we have in light of this current situation deferred the processing investment that we had announced previously and we have put that on hold. We have just taken; we have not spent too much and therefore it won't be a major impairment. But we have put that on hold until we resolve the basic farming structure.

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[Snoopy]

From June 2015 Quarterly Report:

We had made various changes in terms of the operating structure, which again I highlighted in my last quarterly briefing,

More detail on the above in a question from the floor:
"Hi. I'm Rafael from Bloomberg. I think you mentioned you will have -- might have some one-off restructuring cost in Uruguay in the next half. So what sort of range can we expect this cost to be?

Sunny Verghese- Olam International Ltd - Co-Founder, Group MD and CEO

"It's difficult to give you a precise range at this point in time. What Shekhar told you is that by Q3 that will get clearer. But the plan is to reduce our total farms from the current roughly 49 farms that we have to about 32. And that will include then culling of cows from the 87,000 herd population that we currently have to somewhere around 50,000 cows. That will make it a more focused and closer, tighter operation. And then we will focus in building up the productivity in terms of milk production per cow per day and also reduce our overall cost."

"In that context our milk production will come down from what we had thought at full scope of 49 farms and 87,000 cows of between 200m and 225m of liters of milk, that will come down to about 150m liters of milk. So we will shrink and then we will decide whether we want to grow again at an appropriate time. That shrinking will result in some restructuring costs. Today we have not crystallized that because as we're speaking we are establishing which farms and how many and where and all that stuff. By the third quarter that will become a little bit more clearer and we will share that with you at that time."

"As Shekhar mentioned, it's important to also note that at current dairy prices -- I don't know how many of you are following the strikes in the UK by dairy farmers or the strikes in France by dairy farmers, or the suicides that have been reported in New Zealand, that farmers absolutely struggling to repay their loans. So the dairy industry -- and, as we all know in the commodity business, the cure for high prices is high prices and the cure for low prices is low prices. When prices in dairy remain below the cost of production for prolonged period of time, there will be a massive supply response. And if prices are high for a long period of time, there will be a massive supplier response, which will lead to lower prices. And therefore we see these cycles in the emerging markets. That has always been the case. It will never change going forward as well. That will be the scenario."

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Looks like some fairly drastic stuff going on behind the scenes in Uruguay!

SNOOPY

[Snoopy]

Sunny Verghese- Olam International Ltd - Co-Founder, Group MD and CEO

"The plan is to reduce our total farms from the current roughly 49 farms that we have to about 32. And that will include then culling of cows from the 87,000 herd population that we currently have to somewhere around 50,000 cows. That will make it a more focused and closer, tighter operation. And then we will focus in building up the productivity in terms of milk production per cow per day and also reduce our overall cost."

"In that context our milk production will come down from what we had thought at full scope of 49 farms and 87,000 cows of between 200m and 225m of liters of milk, that will come down to about 150m liters of milk. So we will shrink and then we will decide whether we want to grow again at an appropriate time. That shrinking will result in some restructuring costs. Today we have not crystallized that because as we're speaking we are establishing which farms and how many and where and all that stuff."

Reporting on the year ended 31st December 2015

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The Dairy farming operation in Uruguay was substantially restructured on account of the continued depressed market conditions in dairy and operational underperformance. We closed a significant number of dairy farms and reduced herd population from approximately 87,000 to 56,000 which resulted in a one-time restructuring cost of S$76.9 million in Q4 2015. We are encouraged by the improvement in farm operating costs and milk productivity post the restructuring. Subject to dairy prices, the business is expected to turn profitable from 2017.

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At balance date the NZD and SGD were roughly at par. So a $76.9m hit spread over 87,000 cows means a downsizing cost of:

76,900,000 / 87,000 = $884 per cow

This is a similar price drop to the NZ Dairy cow price dip from mid 2014 to mid 2015. Over that time prices in NZ fell from $2100 to $1500 per dairy cow.

SNOOPY

[Newman]

[At balance date the NZD and SGD were roughly at par. So a $76.9m hit spread over 87,000 cows means a downsizing cost of:

76,900,000 / 87,000 = $884 per cow

This is a similar price drop to the NZ Dairy cow price dip from mid 2014 to mid 2015. Over that time prices in NZ fell from $2100 to $1500 per dairy cow.

SNOOPY[/QUOTE]
Here is the link to the article:
http://www.fwi.co.uk/business/dairy-...ia-ban-end.htm

It seems that milk is overproduced everywhere and a third year of low farmgate payout is very likely.

[Snoopy]

Reporting on the year ended 31st December 2015

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The Dairy farming operation in Uruguay was substantially restructured on account of the continued depressed market conditions in dairy and operational underperformance. We closed a significant number of dairy farms and reduced herd population from approximately 87,000 to 56,000 which resulted in a one-time restructuring cost of S$76.9 million in Q4 2015. We are encouraged by the improvement in farm operating costs and milk productivity post the restructuring. Subject to dairy prices, the business is expected to turn profitable from 2017.

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At balance date the NZD and SGD were roughly at par. So a $76.9m hit spread over 87,000 cows means a downsizing cost of:

76,900,000 / 87,000 = $884 per cow

This is a similar price drop to the NZ Dairy cow price dip from mid 2014 to mid 2015. Over that time prices in NZ fell from $2100 to $1500 per dairy cow.

From p25 of the Olam International Annual Report

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Unlocking value: the sale-and-leaseback model

Since 2013 Olam has adopted a sale-and-leaseback model for its upstream operations across the USA, Australia, Uruguay and Africa. This asset-light model involves selling land, plantation assets, and related processing assets to investors who believe in their long-term value and then leasing them back for a rental fee over their remaining useful life. Through this model, not only do we unlock the value of these assets at a premium, we also enhance our returns by reducing asset intensity, thereby releasing cash and lowering our gearing. We still retain the production economics of an upstream operation as we continue to operate these assets and realise their value of the production output. This model has so far been adopted for our almond orchards in the USA and Australia, dairy farms in Uruguay and most recently for our palm plantations and milling assets in Gabon – the first of its kind in Africa, setting the template for us to do similar transactions to optimise our balance sheet going forward.

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Meanwhile Olam is looking to cut all ties with New Zealand

http://www.scoop.co.nz/stories/BU160...es-with-nz.htm

"Olam has retained a New Zealand registration for the South American subsidiary since buying out minority shareholders and delisting it from the NZX in late 2012, with its registered office care of law firm Buddle Findlay in Auckland. But the latest annual report of Farming Systems says the group "has the intention to deregister the parent company from the NZ Companies Office and migrate to Uruguay."

"Farming Systems appears to have been hard hit by the downturn in global prices of dairy products, with its net loss widening to US$74.5 million in the year ended June 30, from US$69.5 million a year earlier. Sales fell 34 percent to US$48.9 million."

"The latest accounts show the Singaporean parent is still propping up the Uruguayan business, with US$206.9 million of interest-free loans, up from US$126.5 million a year earlier. At the same time, short-term bank loans in Uruguay fell to about US$55 million from US$124 million, resulting in total loans and borrowing rising to US$272.6 million from US$250.9 million."

This looks like a disastrous unfolding train wreck in Uruguay. I was annoyed to be forced out of the company taking a small loss in 2012 at the time. But I might have dodged a receivers bullet!

SNOOPY

[Snoopy]

From p25 of the 2016 Olam International Annual Report

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Unlocking value: the sale-and-leaseback model

Since 2013 Olam has adopted a sale-and-leaseback model for its upstream operations across the USA, Australia, Uruguay and Africa. This asset-light model involves selling land, plantation assets, and related processing assets to investors who believe in their long-term value and then leasing them back for a rental fee over their remaining useful life.

Six and a bit years on from the end of the NZX listing: 'NZ Farming Systems Uruguay' is still going, albeit under Olam International stewardship! Olam has retained the subsidiary name, despite cutting ties with NZ. I suppose when things have gone wrong since, it is corporately savvy to still blame New Zealand, while gains can be attributed to the new Singaporean ownership. Sometimes it is interesting to look back and see what has changed in those intervening years

	Farms Operated Nov 2102	Farms Operated Dec 2108
West
	Cabure Dairy Farm (O)	Cabure Dairy Farm
	Menafra Dairy Farm (O)	Menafra Dairy Farm
	Valle de Soba Dairy Farm (O)	Valle de Soba Dairy Farm
		Catern Livestock
	Gamarra Livestock (R)
	Iruleguy Livestock (R)
Centre
	Cardo Azul Livestock (R)	Cardo Azul Dairy Farm
	Cunyatay Dairy Farm (O)	Cunyatay Dairy Farm
	Donya Celia Dairy Farm (O)	Donya Celia Dairy Farm
	Gandara Dairy Farm (O)	Gandara Dairy Farm
	La Leticia Dairy Farm (O)	La Leticia Dairy Farm
	Naranjalas A Dairy Farm (O)	Naranjalas A Dairy Farm
	Naranjalas B Dairy Farm (O)	Naranjalas B Dairy Farm
	San Pedro Dairy Farm (O)	San Pedro Dairy Farm
	Santa Elvira Dairy Farm (O)	Santa Elvira Dairy Farm
	Arin Livestock (R)	Arin Livestock
		Benedeck Livestock
	Cerro Zarco Livestock (R)
	Danulia Livestock (R)
	Don Sebastian Livestock (R)
		Estancia Mendoza Livestock
		Landa Livestock
		Los Peralas Livestock
	Mariezcurrena Livestock (R)
		Masetapal Livestock
	Olalquiaga Livestock (R)
		Rava Livestock
		San Francisco Livestock
	Santa Rita Livestock (R)
	Sastre Livestock (R)
East
	Cerco de Piedra and Monasterio Dairy Farm (O)	Monasterio Dairy Farm
	Novillas Dairy Farm (O)	Novillas Dairy Farm
	Tobay Dairy Farm (O)	Tobay Dairy Farm
	Cuatro Cerros Livestock (O)	Cuatro Cerros Livestock
	El Higueron Livestock (O)	El Higueron Livestock

Note: (O)= Owned, (R)= Rented

It is interesting to see that since 'we' sold out, there has only been one new dairy farm developed (Cardo Azul). In the west and central areas, the livestock rearing properties from 2012 (all rentals) have been largely 'swapped out' with others.

Subsequent to taking over, Olam have committed to spending $80m to building a dairy processing plant in Uruguay with the capacity to take the output from all of their dairy farms, The facility will initially have a capacity to process 600,000 liters of milk per day, going up to one million liters - the level of milk production that NZFSU dairy farms are expected to reach at steady state. The plant became operational in 2017, with the aim of making NZ Farming Systems Uruguay a vertically integrated producer and manufacturer. The plant is in San José, Uruguay (100 kilometers from the capital Montevideo).

From AR2017 p38 "Dairy farming in Uruguay continued to report improved financial and operating results year-on-year"

Further on in AR2017 p56

"Individual cow productivity achieved the highest levels compared to previous years. The improvement derives from better body condition of the herd at calving. Livestock management protocols implemented during 2016 significantly reduced livestock mortality and continued to prove successful during 2017."

Fast forward to the FY2018 management commentary p17 and we learn:

"the farming operations in Uruguay experienced drought conditions, leading to higher feed costs."

SNOOPY

[Snoopy]

Subsequent to taking over, Olam have committed to spending $80m to building a dairy processing plant in Uruguay with the capacity to take the output from all of their dairy farms, The facility will initially have a capacity to process 600,000 liters of milk per day, going up to one million liters - the level of milk production that NZFSU dairy farms are expected to reach at steady state. The plant became operational in 2017, with the aim of making NZ Farming Systems Uruguay a vertically integrated producer and manufacturer. The plant is in San José, Uruguay (100 kilometers from the capital Montevideo).

The former "New Zealand Farming Systems Uruguay" looks like it has come to a sticky (or should that be powdery?) end. I am a bit late in reporting as this article came out on October 23rd 2021

https://www-eltelegrafo-com.translat...n&_x_tr_pto=sc


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Exit and sale of Olam generates great concern in the dairy chain

"The departure and sale of fields of the multinational based in Singapore, Olam, one of the main milk producers in Uruguay -it has 20 dairy farms- generates concern in the dairy chain, sources in the sector revealed to IT Lechería."

"The information was released this week by Tiempo de Cambio on Rural radio. It is that the departure of a heavyweight from production, at a time when the sector seeks to come out on top, is bad news and a negative sign for the entire chain. As IT Lechería learned, up to now it is not clear how many of these dairy farms will be able to remain standing, but there are farms where these dairy farms are located, and they will not continue with dairy production, although at least three establishments would remain in dairy activity despite the change of owners the land."

"Olam had already reduced its production in 2020 when it handed over leased fields in Rocha and Lavalleja. The bulk of Olam's production is in Florida, while the Rio Negro area has the rest. Specifically, one of the industries that could be affected by the potential closure of dairy farms in that area is Alimentos Fray Bentos (producer of infant formula and milk powder). The other company that is also affected is Conaprole headquartered in Uruguay, the leading dairy manufacturer and exporter of milk in South America."

"Last August, the latest data published by the National Milk Institute (Inale), the price of milk sent to the plant in Uruguay was US$ 0.355 per litre. With respect to the aforementioned floor of March 2020, the recovery is a robust 26% or 7 cents per litre. This is the highest price since the beginning of 2015, when those records of more than US$ 40 cents that prevailed in 2013 and 2014 were left behind."

"The price of milk, expressed in US dollars, is in clear recovery from the floor it touched in March 2020, when the pandemic began and the dollar jumped in the domestic market. However, the increase in many of the costs does not allow this improvement in the price of the product to be translated into profits of a similar proportion for the dairy farmers."

"Perhaps one of the most emblematic cases in recent months is urea which, hand in hand with the rise in energy costs, is reaching its highest values ​​in several years. The Customs data for the import of urea in September 2021 is at a value of US$ 525 per ton, almost double the US$ 269 at which it was imported in March 2020."

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I notice the article was still using the "New Zealand Farming Systems Uruguay" logo. That will be a perpetual reminder to Uruguayans of how stupid we NZers were thinking we could go over to another country and tell native farmers how to run their farms under a New Zealand engineered corporate model. Craig Norgate has been put to rest, and now, finally, so have his dreams.

SNOOPY

[whatsup]

The former "New Zealand Farming Systems Uruguay" looks like it has come to a sticky (or should that be powdery?) end. I am a bit late in reporting as this article came out on October 23rd 2021

https://www-eltelegrafo-com.translat...n&_x_tr_pto=sc


-------------------------

Exit and sale of Olam generates great concern in the dairy chain

"The departure and sale of fields of the multinational based in Singapore, Olam, one of the main milk producers in Uruguay -it has 20 dairy farms- generates concern in the dairy chain, sources in the sector revealed to IT Lechería."

"The information was released this week by Tiempo de Cambio on Rural radio. It is that the departure of a heavyweight from production, at a time when the sector seeks to come out on top, is bad news and a negative sign for the entire chain. As IT Lechería learned, up to now it is not clear how many of these dairy farms will be able to remain standing, but there are farms where these dairy farms are located, and they will not continue with dairy production, although at least three establishments would remain in dairy activity despite the change of owners the land."

"Olam had already reduced its production in 2020 when it handed over leased fields in Rocha and Lavalleja. The bulk of Olam's production is in Florida, while the Rio Negro area has the rest. Specifically, one of the industries that could be affected by the potential closure of dairy farms in that area is Alimentos Fray Bentos (producer of infant formula and milk powder). The other company that is also affected is Conaprole headquartered in Uruguay, the leading dairy manufacturer and exporter of milk in South America."

"Last August, the latest data published by the National Milk Institute (Inale), the price of milk sent to the plant in Uruguay was US$ 0.355 per litre. With respect to the aforementioned floor of March 2020, the recovery is a robust 26% or 7 cents per litre. This is the highest price since the beginning of 2015, when those records of more than US$ 40 cents that prevailed in 2013 and 2014 were left behind."

"The price of milk, expressed in US dollars, is in clear recovery from the floor it touched in March 2020, when the pandemic began and the dollar jumped in the domestic market. However, the increase in many of the costs does not allow this improvement in the price of the product to be translated into profits of a similar proportion for the dairy farmers."

"Perhaps one of the most emblematic cases in recent months is urea which, hand in hand with the rise in energy costs, is reaching its highest values ​​in several years. The Customs data for the import of urea in September 2021 is at a value of US$ 525 per ton, almost double the US$ 269 at which it was imported in March 2020."

--------------------------


I notice the article was still using the "New Zealand Farming Systems Uruguay" logo. That will be a perpetual reminder to Uruguayans of how stupid we NZers were thinking we could go over to another country and tell native farmers how to run their farms under a New Zealand engineered corporate model. Craig Norgate has been put to rest, and now, finally, so have his dreams.

SNOOPY

Yes and so many Kiwi farmers bought into this dream as a way of expanding their empires without getting their hands dirty, lesson for them , " stick to your knitting " which you are very good at !