Thursday, 26 September 2013

Mother Nature Applies $1.15 Billion Climate Change Charge to Fonterra Earnings

NBR Article 25092013 John Wilson's Summary

Drought - one of the long predicted effects of climate change, is now showing up in Fonterra's corporate results, with Chairman John Wilson reporting a 9% drop in milk production in the last six months of the season, a 28% (!) reduction in cashflow.

Revenue fell 6% to $18.6 billion, meaning a drop of $1.15 billion in earnings for Fonterra farmers, or, a Climate Change Charge of $1.15 billion.  That's a lot of money.  This drop outweighed the effect of any other negatives "headwinds", such as food safety issues. Fonterra has used its Treasury to insulate farmers from the effects of drought by raising the Advance Rate to farmers - effectively a climate change subsidy.

And perversely, drought in other locations around the world has made the price paid for dairy products go up, as supply goes down.

It will be interesting to see how New Zealand's largest company copes with increasing drought and flooding predicted as a result of climate change.  How long will its Treasury hold out?  

Climate Change Charges are also being applied to other New Zealanders - the Insurance Council reported $100 million in costs from recent storms.

This just shows us that New Zealand needs to get back in the game of taking serious and effective action to reduce greenhouse gas emissions.  This $1.15 billion, which has come to charge now, in this financial year, is way way more than the predicted cost of any carbon trading scheme, let alone any carbon tax.  And it would pay for an awful lot of good science and lobbying in the international arena - and this is a Climate Change Charge on just one of our industries!  

Mother Nature responds only to the laws of physics, not to the naive notions of lobbyists and vested interests still living in the 19th Century.  Farmers would do well to get together and plant a whole heap of trees. 

I'll be keeping track of Climate Change Charges in future for New Zealand and other countries...Australia is an interesting case study....more on that later....