September 1, 2025 • 6 mins
One of our leading primary sector academics says, "It's the margin, Stupid". We discuss profitability, supermarket competition and whether Fonterra should be selling its consumer brands business.
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Speaker 1 (00:00):
She is one of our leading primary sector academics. Doctor
Jacqueline Rowis writes a fortnightly column for US, and this
week's offering is it's the margin stupid. Are you channeling
your very best James B. Carvill, of course, the man
who coined the phrase it's the economy stupid for the
Clinton campaign way back in nineteen ninety two.
Speaker 2 (00:22):
Jacqueline, Yes, of course I am, because now I'm translating
it to businesses in New Zealand and we have to
be going for the margin. People don't always understand there's
the difference between record prices and record profit. Though I
hesitate to use the P word because it causes all
sorts of thanks, but it's the margin that matters to
(00:42):
our businesses.
Speaker 1 (00:43):
Now, this is a good point you've made here, because
we are effectively getting record prices for our commodities, but
I don't think we're getting a record margin. In fact,
if you are looking for a record margin for for instance, Derry,
I think you'd go back ten or twelve years to
what the twenty thirteen fourteen season when we got eight
dollars forty and the cost of production then would be
(01:05):
half what it is now.
Speaker 2 (01:07):
Yeah, it was pre COVID. It was pre all sorts
of inflationary things that were precipitated by COVID, and of
course all the interest rates. So the interest rates which
are still very much less film than I has bought
my birth house in the olden days, they are still
pretty crippling for businesses, particularly the small ones, particularly on farming,
(01:29):
and that's been the whole cause of the debate with
federated farmers because of the uncertain income. It's not like
having a house and employment where you get a fortnightly
pay packet. Farming is lumpy. Now.
Speaker 1 (01:42):
I know the cost of food to fix us all
because we all have to eat, and it seems that
buttergate has been a bit of a beat up, do
you know what I just I'm not saying that people
shouldn't be concerned about the price of food, but having
just had a scrap with the Dunedin City Council over
my rate spell, JaQuel, I think the roughts out there
are rates, insurance, energy costs.
Speaker 2 (02:03):
Yeah, yes, and those are the things that need investigating,
not for endless supermarkets, poor things. I do actually feel
for them because really keep being investigated, Yet they keep
being investigated It's like being the naughty child in the
room and they keep coming out saying, well, it's not
extortionate because all the things that you've just pointed out,
(02:26):
including the highk in the minimum wage, all of that
has a ramping up, escalating effect through from the soil
where I'm farming light through to the supermarket where I
buy my food. So every single part is accretionary, and
nine hundred percent on insurance preciously what about electricity, all
(02:46):
the things you've just mentioned, And so that's why I
get a bit bothered by beyond your use of the
term crisis, gosh, maybe we need to get used to it.
Speaker 1 (02:56):
You've written in your column that we are a nation
of five point three million people the UK same size
seventy million on supermarkets per head as supermarkets are serving
should I say, many less people than they are in
the UK. You're suggesting this is a controversial view. There's
not actually a room for a major third player, not
(03:19):
on those data.
Speaker 2 (03:20):
No, there are different ways of calculating the data, and
a few months ago I wrote one using the Australian comparisons,
and it seemed that our big supermarkets are serving more
people and therefore there economies of scale, but we've got
so many little ones around that actually the economies of
scale are being squeezed, so our bigger supermarkets might be
(03:44):
in strikes. And remember the New Zealand Woolworths does not
make the same profit as the Australian wolworth where there
are a lot more companies.
Speaker 1 (03:53):
Let me just finish on another controversial issue out there,
and this is Fonterra selling off its consumer brands. Obviously
the decision is in the hands of the Fonterira farmer shareholders,
so it should be, but everyone seems to have an
opinion on this. I see one of your fellow academics,
Alan Rennick, Agriculture and economics professor at Lincoln University, is
(04:14):
saying he thinks it's a bit of a dumb idea.
Speaker 2 (04:17):
And I'd go back to thinking about what are we
trying to do in New Zealand. And we keep thinking
we're a big player, but actually it's a much much
bigger pond out there. And so there are different arguments.
One is the heartfelt and one is the economic one.
If we want New Zealand to survive, we need to
think about the best use of every dollar that we have.
(04:39):
And if there is a liberation from Fonterra in terms
of funds, what will that mean through the economy. Cameron
Bagri calculates its zero point seven percent of GDP boost
and everybody would benefit from that.
Speaker 1 (04:54):
What do you say to mister Rennick who says that
ingredients are easier to substitute than brands, which leaves Fonterra exposed.
And I know that Fonterra has a ten year agreement
to supply the ingredients to Lactalis. I think I got
that right. No, I didn't really, but anyhow, let's move on,
(05:14):
so you know, and his point is we're giving up
the value add part of the business.
Speaker 2 (05:19):
Look at the value within Fonterra and they're saying it's
not as big as people think. And all those are
public data to have a look at. And I'd say,
where is our best investment ten years. I haven't got
a crystal ball that will go that far. I can't
even do next week. We don't know what will happen,
but a liberation of point seventy percent of GDP that
(05:40):
will make a significant difference to the whole of the economy. YEP.
Speaker 1 (05:44):
And I think Miles horror and Peter McBride are reasonably
smart people. Probably put my faith in those guys. Anyhow,
we'll see what happens. Interesting times in the dairy industry,
of course, with all the acquisitions coming from our good
friends at Open Country Dairy. It's all on. It's game
on jack.
Speaker 2 (06:00):
It is and Meraka made the point it's too small
in New Zealand. You know, we think they're big fishes,
but were actually quite tiny. Meeraka has said it's very
difficult being a small operator and it's better to be
with somebody bigger.
Speaker 1 (06:15):
Yeah, and that's Mark Delatour's point exactly on yesterday's show.
Thanks as always for your time. People can read your
column it's the margin stupid on our website, The Country,
dot co, dot MZ.
Speaker 2 (06:27):
Thanks Henny,
She is one of our leading primary sector academics. Doctor
Jacqueline Rowis writes a fortnightly column for US, and this
week's offering is it's the margin stupid. Are you channeling
your very best James B. Carvill, of course, the man
who coined the phrase it's the economy stupid for the
Clinton campaign way back in nineteen ninety two.
Speaker 2 (00:22):
Jacqueline, Yes, of course I am, because now I'm translating
it to businesses in New Zealand and we have to
be going for the margin. People don't always understand there's
the difference between record prices and record profit. Though I
hesitate to use the P word because it causes all
sorts of thanks, but it's the margin that matters to
(00:42):
our businesses.
Speaker 1 (00:43):
Now, this is a good point you've made here, because
we are effectively getting record prices for our commodities, but
I don't think we're getting a record margin. In fact,
if you are looking for a record margin for for instance, Derry,
I think you'd go back ten or twelve years to
what the twenty thirteen fourteen season when we got eight
dollars forty and the cost of production then would be
(01:05):
half what it is now.
Speaker 2 (01:07):
Yeah, it was pre COVID. It was pre all sorts
of inflationary things that were precipitated by COVID, and of
course all the interest rates. So the interest rates which
are still very much less film than I has bought
my birth house in the olden days, they are still
pretty crippling for businesses, particularly the small ones, particularly on farming,
(01:29):
and that's been the whole cause of the debate with
federated farmers because of the uncertain income. It's not like
having a house and employment where you get a fortnightly
pay packet. Farming is lumpy. Now.
Speaker 1 (01:42):
I know the cost of food to fix us all
because we all have to eat, and it seems that
buttergate has been a bit of a beat up, do
you know what I just I'm not saying that people
shouldn't be concerned about the price of food, but having
just had a scrap with the Dunedin City Council over
my rate spell, JaQuel, I think the roughts out there
are rates, insurance, energy costs.
Speaker 2 (02:03):
Yeah, yes, and those are the things that need investigating,
not for endless supermarkets, poor things. I do actually feel
for them because really keep being investigated, Yet they keep
being investigated It's like being the naughty child in the
room and they keep coming out saying, well, it's not
extortionate because all the things that you've just pointed out,
(02:26):
including the highk in the minimum wage, all of that
has a ramping up, escalating effect through from the soil
where I'm farming light through to the supermarket where I
buy my food. So every single part is accretionary, and
nine hundred percent on insurance preciously what about electricity, all
(02:46):
the things you've just mentioned, And so that's why I
get a bit bothered by beyond your use of the
term crisis, gosh, maybe we need to get used to it.
Speaker 1 (02:56):
You've written in your column that we are a nation
of five point three million people the UK same size
seventy million on supermarkets per head as supermarkets are serving
should I say, many less people than they are in
the UK. You're suggesting this is a controversial view. There's
not actually a room for a major third player, not
(03:19):
on those data.
Speaker 2 (03:20):
No, there are different ways of calculating the data, and
a few months ago I wrote one using the Australian comparisons,
and it seemed that our big supermarkets are serving more
people and therefore there economies of scale, but we've got
so many little ones around that actually the economies of
scale are being squeezed, so our bigger supermarkets might be
(03:44):
in strikes. And remember the New Zealand Woolworths does not
make the same profit as the Australian wolworth where there
are a lot more companies.
Speaker 1 (03:53):
Let me just finish on another controversial issue out there,
and this is Fonterra selling off its consumer brands. Obviously
the decision is in the hands of the Fonterira farmer shareholders,
so it should be, but everyone seems to have an
opinion on this. I see one of your fellow academics,
Alan Rennick, Agriculture and economics professor at Lincoln University, is
(04:14):
saying he thinks it's a bit of a dumb idea.
Speaker 2 (04:17):
And I'd go back to thinking about what are we
trying to do in New Zealand. And we keep thinking
we're a big player, but actually it's a much much
bigger pond out there. And so there are different arguments.
One is the heartfelt and one is the economic one.
If we want New Zealand to survive, we need to
think about the best use of every dollar that we have.
(04:39):
And if there is a liberation from Fonterra in terms
of funds, what will that mean through the economy. Cameron
Bagri calculates its zero point seven percent of GDP boost
and everybody would benefit from that.
Speaker 1 (04:54):
What do you say to mister Rennick who says that
ingredients are easier to substitute than brands, which leaves Fonterra exposed.
And I know that Fonterra has a ten year agreement
to supply the ingredients to Lactalis. I think I got
that right. No, I didn't really, but anyhow, let's move on,
(05:14):
so you know, and his point is we're giving up
the value add part of the business.
Speaker 2 (05:19):
Look at the value within Fonterra and they're saying it's
not as big as people think. And all those are
public data to have a look at. And I'd say,
where is our best investment ten years. I haven't got
a crystal ball that will go that far. I can't
even do next week. We don't know what will happen,
but a liberation of point seventy percent of GDP that
(05:40):
will make a significant difference to the whole of the economy. YEP.
Speaker 1 (05:44):
And I think Miles horror and Peter McBride are reasonably
smart people. Probably put my faith in those guys. Anyhow,
we'll see what happens. Interesting times in the dairy industry,
of course, with all the acquisitions coming from our good
friends at Open Country Dairy. It's all on. It's game
on jack.
Speaker 2 (06:00):
It is and Meraka made the point it's too small
in New Zealand. You know, we think they're big fishes,
but were actually quite tiny. Meeraka has said it's very
difficult being a small operator and it's better to be
with somebody bigger.
Speaker 1 (06:15):
Yeah, and that's Mark Delatour's point exactly on yesterday's show.
Thanks as always for your time. People can read your
column it's the margin stupid on our website, The Country,
dot co, dot MZ.
Speaker 2 (06:27):
Thanks Henny,
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