Nick Tuffley: ASB Chief Economist says New Zealand's economy could benefit from Fonterra sale

New Zealand's economy could look to benefit from Fonterra’s proposed sale.

The proposed sale of Anchor and Mainland brands to French company Lactalis could unlock around 4.5 billion in additional spending.

ASB Chief Economist Nick Tuffley says they estimate around 60 percent of shareholding farms could receive at least 200-thousand dollars.

He says the likely pay out would happen in the first half of next year, so after then,  the impacts on farm investments or consumer spending would be seen.

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Episode Transcript

Speaker 1 (00:00):
Having dealt with the Alliance, dooring meet boat this week
next cab off. The old agricultural rankers, of course, are
the brand sale for Fontira. I got a new report
from ASB estimates the deal could unlock four and a
half billion in additional spending. The flow and effects everywhere
from manufacturing to retail to real estate, average farmer return
could hit three hundred and ninety two thousand. Nick Toughley,
asb's chief economist is back. Well this Nick morning to you.

(00:21):
Come on, is this an economy mover?

Speaker 2 (00:24):
We look, it's certainly going to help when you edit
up and look at the how that spending could flow
through and stimulate spending and income another sectors and so on.
You're talking about one percent of GDP over a period
of time. I think the caveat is that the impact
gets a lot more focus and sectors that are a
bit more adjacent to where farmers normally spend their money.

(00:45):
So we still think the Reserve Bank will need to
cap rates a little bit further just to help with
that sort of broader economical capuary. But hey, this certainly
is going to help.

Speaker 1 (00:54):
What's your vibe around the debt V spend in other words,
how many paying down debt versus will go out there
and have a party.

Speaker 2 (01:00):
But we're roughly estimating it will be somewhere around like
fifty to fifty in the sense that you will see
a reasonable amount of debt retirement and savings built up.
But you'll then also see on farm investments. You'll see
that a personal spending by farmers, and you may see
some farmers, you know, particularly ones that have been looking
at retirement, moving off off farm and taking those windfalls

(01:23):
elsewhere as well, so raffle effects through.

Speaker 1 (01:26):
I can't I mean, I don't know whether you can
draw comparisons. I mean I always saw the Alliance deal
going ahead because they were they were in a corner
and they were stuck. It's not the same with Fonterra.
But I equally see the deal going ahead. You don't
turn down four hundred thousand dollars, do well.

Speaker 2 (01:39):
We'll certainly be up to the farmers to decide what
they're going to support, support it or not. We've got
the folks coming through next week, and of course it
does need regulatory permission to go ahead as well.

Speaker 1 (01:50):
That wouldn't be a problem, would it.

Speaker 2 (01:52):
Or I don't really see any particular reasons not to,
but I'm just not in the area that I'm really
that much of an expert. When you're looking, when you've
seen independent reports of the offer price, you know that
have been done for the sort of farmer's shareholders, that
sort of suggests it's a pretty generous offer.

Speaker 1 (02:11):
In reading the spread, so three ninety two is the average,
but there's sixty percent? Is it two or three hundred
thousand dollars? I think I've written that downe wrong, But anyway,
the point is, is the spread of the payout of
itsels broad enough to make a genuine economic impact or
a handful of people getting a shedloaded.

Speaker 2 (02:28):
Though, we did some calculations that suggest that you've probably
got sort of upwards of sixty percent of farmers will
get sort of at least two hundred thousand dollar catch
wind full. So that's a fair chunk and that's pretty significantly.
You're starting to talk about a decent LOTO win amount
coming through there. So in terms of you know, fairly

(02:49):
big decisions, Okay, this is a good time to put
some money onto the farm and invest in productivity or
placing the milkshead. It's potential to have that sort of
profound decision making impact.

Speaker 1 (03:01):
Just going back to the export numbers that we got
a week, all this week, whenever it was, I can't
remember how much actual lifting of the economy is dairy doing.

Speaker 2 (03:11):
Look, it's basically the number one still, so it's our
very important export industry. We're still seeing the value of
our dairy exports go up. And also we're still relatively
resilient with our exports to the US as well, which
is one reasonable market for us too. So look, this
is where a fair chunk of money, not just dairy,

(03:32):
but meat as well, and our fruit we get a
lot of revenue that filtered through into the economy.

Speaker 1 (03:39):
Yeah, a good long weekend. Appreciate your expertise as always,
Nick Tuffley out of the aspre this morning. For more
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