Kiwi dairy farmers better off investing offshore

Media release

February 3, 2008

Kiwi dairy farmers better off investing offshore

With the New Zealand dairy payout plunging, accountancy firm Staples Rodway advises farmers they could achieve better returns investing in Russia.

According to Wade Glass, Corporate Advisory Services director of Staples Rodway, dairy farmers in Russia are receiving NZ$14.40/kg of milksolids - more than double that of their Kiwi counterparts.

“The Russian appetite for fresh milk products has been growing as the wealth of the nation’s middle class escalates. As a consequence, Russian dairy producers have so far been insulated from the effects of falling dairy commodity prices. The falling dairy payout here only serves to highlight New Zealand’s dependence on global milk powder prices,” he says.

Significant farming subsidies have also become available in Russia, to encourage dairying investment from offshore. They include approximately US$550 for every dairy heifer imported to Russia.

Russia has a lot of inexpensive land. Some of it, in Penza - the so-called "Black Earth" region - is extremely fertile and under-utilised.   This is the key area being targeted for dairy development.

Staples Rodway has been instrumental in establishing a joint venture between a Russian businessman and a group of New Zealand investors.  The venture involves a 25,000-hectare feedlot operation in Penza, which is on the main trunk line to Moscow.

“We took a contingent of Kiwis up to Russia last year to have a look and we are about to return again during March with about half a dozen interested investors,” says Mr Glass. “We acknowledge that Russia certainly has a different political risk profile to New Zealand, but the financial returns make a compelling case for farmers to make a small investment as part of their wider asset portfolio.”

Mr Glass says “investment in any emerging market requires the assistance of a local partner with access to key government decision makers and business infrastructure. I feel that this project ticks all of those boxes.”

The project is headed up by New Zealander Dr Richard Mahoney, an emerging markets dairy expert and former vet.  It is also currently recruiting in New Zealand for a dairy manager.  “We are in working towards signing contracts with other Kiwis for expert services we require up there,” says Mr Glass.

Construction of the feedlot housing is expected to begin in the second half of this year.

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