Friday, 22 June 2018

Beware of Economists - Dairy Edition

Andrea Fox's excellent report on Fonterra has flushed out some bold opinions, none more so than those of "independent economists" Cameron Bagrie and Peter Fraser.
Bagrie manages to miss the vertically integrated wood for the functionally distinct trees:
"There's a major issue between the economic incentives of the two parts of the business. One part is trying to maximise milk payments and the other is trying to maximise value-added. When one does well, the other tends to suffer."
Shared-up Fonterra suppliers really don't care about this "major issue" Cameron, because we have a natural hedge against the price risk you are highlighting. It's the main strength of the co-op model. You might want to talk to some of our large electricity generator/retailers about this - they understand the concept pretty well.
Fraser is more like a shotgun on full choke, spraying thoughtlets wildly around the place. Bagrie is wrong but at least he put up an argument. There's no trace of one in Fraser's comments, despite the boldness of a break-up proposal. 
I'm not dismissing the idea, by the way. Fonterra has been a serious disappointment, as my fellow shareholders well know. I just think the idea deserves some serious analysis before people start promulgating it.

No comments:

Post a Comment