2015/16 Annual review of Landcorp Farming Limited

Transcription

1 2015/16 Annual review of Landcorp Farming Limited Report of the Primary Production Committee Contents Recommendation 2 About Landcorp Farming Limited 2 Financial performance 2 Transformation of Landcorp and the Pāmu brand 2 Measuring social impact 3 Evolution of organic farming 3 Conversion of the Wairakei estate 3 Sale of farms 4 Relationship with iwi 4 Centralisation of staff 4 Attracting people into agriculture 4 International trends in growing artificial food 5 Appendix 6

2 Landcorp Farming Limited Recommendation The Primary Production Committee has conducted the annual review of the 2015/16 performance and current operations of Landcorp Farming Limited, and recommends that the House take note of its report. About Landcorp Farming Limited Landcorp Farming Limited is a State-owned enterprise, created out of the Department of Lands and Survey in It is one of the largest farming organisations in New Zealand, farming 144 properties in dairy cattle, sheep, beef cattle, and deer. Its purpose is to transform New Zealand farming, by creating quality natural products. It strives to be a leader in New Zealand agriculture for best practice in pastoral farming, sustainable use of resources, and continuous improvement in livestock genetics and farming systems. Financial performance Landcorp s total assets increased to $1.79 billion in 2015/16, up from $1.77 billion in 2014/15. It generated total revenue of $209 million, about 7 percent less than in 2014/15. This decrease was primarily due to a drop in livestock and milk revenue. Landcorp made a net operating loss of $9.4 million in 2015/16, compared with a $4.9 million profit in 2014/15. This loss was largely because of changing milk prices. Reflecting changes in livestock values, Landcorp recorded a net profit after tax of $11.5 million, compared with a $20 million loss in 2014/15. As in the previous year, Landcorp did not pay a dividend for 2015/16. The value of the Crown s investment in Landcorp is estimated at $1.4 billion. Transformation of Landcorp and the Pāmu brand In 2015 Landcorp introduced a new brand, Pāmu, to identify high-quality food and fibre produced by Landcorp farms. The Pāmu Promise (which covers people, animals, the environment, and systems and innovation) is an organisation-wide performance and quality framework intended to connect Landcorp s farms with the Pāmu brand. It seeks to provide assurance to customers about the quality, integrity, and sustainability of the products. Landcorp said the Pāmu Promise has changed its approach to how it operates its farms, its investment in health and safety, and commitment to the environment. Previously, it focused some of its investment on converting farmland to dairying, but it has shifted into alternative high-value uses such as deer and sheep milking, and organic systems. The risk of inconsistent quality assurance increases as Landcorp enters into joint ventures to deliver its Pāmu brand. Landcorp told us that it supports the reduction of complexity and duplication of quality assurance systems across the industry. Landcorp hopes to do this by creating its own quality assurance framework for its Pāmu brand. This includes developing long-term partnerships with those who recognise the value proposition of its Pāmu brand. We look forward to seeing detailed reporting on the impact of the Pāmu 2

3 brand on Landcorp s commercial performance from its on-farm activities and along the value chain. Health and safety Improving the culture and conditions for health and safety is a key component of the Pāmu Promise. We asked if the Health and Safety at Work Act 2015 increased compliance costs. Landcorp told us that costs have been largely self-imposed, in response to recent fatalities and a general need to increase safety performance. We will continue to monitor Landcorp s focus on the health and safety of its employees. Environment The Pāmu Promise also entails protecting and enhancing the environment through innovative farming. Landcorp told us that it is too early to quantify the benefits of this environmental approach. However, it is committed to its environmental work and the enhanced commercial outcomes. We look forward to seeing reporting on the benefits and gains from this investment. Measuring social impact We asked whether Landcorp has calculated the intangible returns that it provides to its shareholders and the wider public through its practices for the social good. Landcorp noted that activities undertaken for the good of industry can differ from those undertaken as a result of instructions from shareholders. However, in its case it does not believe the difference is significant. To a large extent, the social good it creates is also underpinned by strong commercial directives. For example, taking a proactive stance on health and safety or environmental mitigation has long-term commercial benefits as well as benefitting the public. It added that one feature distinguishing it from some large commercial farming operations was its structure and regional dispersion. Its farms are in more marginal areas, rather than in Taranaki or Waikato. We would be interested to see Landcorp make an effort at quantifying and reporting the benefits it provides outside a normal business model. Evolution of organic farming Landcorp told us that it has a new organics programme that includes two new organic dairy farms in the North Island, selling organic products to Fonterra. Landcorp also told us that its organic farms are attracting new people into the industry because it provides the experience of different farm systems. However, organic farming entails different processes. Transitioning to these processes requires a change in mind-set that can be a challenge. We hope that Landcorp can help the organics industry grow and prove that it is a viable long-term method of farming in New Zealand. Conversion of the Wairakei estate Wairakei estate is a 25,685-hectare farming operation leased to Landcorp. In 2015/16, Landcorp changed its plans to convert the estate from intensive dairy farming to other land uses. We asked about the change in direction and how it has affected its operating loss this past financial year. 3

4 Landcorp told us that the change in conversion of the estate was driven by two factors. First, it viewed putting 37,000 40,000 cows on the estate as unsustainable, leaving it too exposed to dairy commodity prices. Second, Landcorp wanted a higher commercial return than dairy farming. Sale of farms As part of a review and reconfiguration of Landcorp s farming portfolio, nine farms have been earmarked for sale in 2016/17. Six are in the South Island and three in the North Island. They cover more than 14,000 hectares and are all sheep, beef, and deer farms. Landcorp told us it expects to sell the farms on the open market. Relationship with iwi We asked about Landcorp s relationship with iwi and Māori land interests, and whether it works with Māori groups when selling its farms. Landcorp told us it has a close working relationship with the Office of Treaty Settlements regarding claimant groups. It also has relationships with Māori authorities and iwi incorporations that have previously bought Landcorp farms. As part of Landcorp s Pāmu brand, it has a close relationship with Atihau-Whanganui Incorporation, which is a Māori land incorporation managing vested land. Centralisation of staff Landcorp has 704 permanent employees, including about 100 in its Wellington head office. We asked how this highly centralised staff compares with similar businesses, and whether devolving would reduce overhead costs. Landcorp said it covers four species of livestock and is continually expanding its range of land uses, so it is difficult to make comparisons with other corporate operators that tend to be smaller and focused on one species. Landcorp also operates post-farm-gate in many areas of the business. It sees it as desirable to coordinate livestock and market activities in a centralised fashion. Landcorp told us it constantly looks for ways to reduce its overhead costs in Wellington. If it were to devolve its staff, similar to a traditional model of New Zealand farming, it would lose the value of Landcorp as an entity. If devolved, Landcorp would become 144 individual farms instead of one entity managing 144 farms. We will continue to monitor the performance of Landcorp to see whether its centralised business model contributes to improved financial results over time. Attracting people into agriculture We recognise that agriculture faces an industry-wide problem of high staff turnover. Landcorp told us that two factors contribute to this. First, working conditions on a farm can be dangerous, in terms of both injury and stress. Second, it is hard to attract people to farming who have not considered farming before. Landcorp has various strategies to attract new people into the industry and combat high turnover. Initiatives include direct outreach to schools in the West Coast and far North, as well as collaboration with tertiary institutes, and swapping staff with other farms. 4

5 It also aims to improve its employment brand through the Pāmu Promise and sharing the stories of outstanding Landcorp farmers such as Rebecca Keoghan, Dairy Woman of the Year 2016, and Jack Raharuhi, Ahuwhenua Young Māori Dairy Farmer We commend Landcorp for its initiatives in attracting people into its business and agriculture, and the career progression offered. International trends in growing artificial food One of the growing international trends in the agricultural sector is cultured meat. Cultured meat is grown in a cell culture instead of in an animal. We were told that the board is looking closely at the trend and views it as a long-term threat to New Zealand s pastoral sector. Landcorp considers cultured meat a growing segment of the market. If cultured meat becomes the dominant form of meat production, Landcorp hopes that naturally grown meat would retain a premium. 5

6 Appendix Committee procedure We met on 16 February and 23 March 2017 to consider the annual review of Landcorp Farming Limited. We heard evidence from Landcorp and received advice from the Office of the Auditor-General. Committee members Ian McKelvie (Chairperson) Todd Barclay Hon Chester Borrows Steffan Browning Barbara Kuriger Hon Damien O Connor Richard Prosser Stuart Smith Rino Tirikatene Advice and evidence received The documents that we received as advice and evidence for this annual review are available on the Parliament website under Submissions and Advice. They are listed below: Office of the Auditor-General, Briefing on Landcorp Farming Limited, dated 16 February Landcorp Farming Limited, Responses to questions 1 102, received 31 January Landcorp Farming Limited, Responses to post-hearing questions , received 13 March