Monday, July 28, 2008

Stocks on my Watchlist: NZ Farming Systems Uruguay

On Saturday night I was watching New Zealand's TV One, a conservative channel with middle of the road programming and an audience of mostly over 50 year olds. I'm not there yet.

What I saw at 7.00pm was the channels longest running show, Country Calendar. The show has been running for my whole life, slightly longer than 40 years.

I haven't seen country Calendar for many years but used to regularly watch it in the 70s and 80s.

From my memory it has always been about innovative farming and new ways to make farming easier and therefore increasing the bottom line.

I have checked in periodically over the years and have lost interest because it seems to have lost its focus, for me, on its essential businesslike thrust and become just another "lifestyle show".

Last Saturday I was blown away though, transfixed on the programme as I used to be so many years ago.

The show was about PGG Wrightsons Ltd [PGW.NZ] push into dairy farming. In partnership with its stake in NZ Farming Systems Uruguay Ltd [NZS.NZ] NZFSU, which is managed, part-owned by Wrightson and listed on the NZ Stockmarket, this New Zealand company is forging a new frontier in farming outside its familiar home environment.

As many New Zealanders might know, dairy farming in New Zealand has become big business. It is an industry that contributes a massive amount to our export earnings.

However higher costs of production, labour, land cost and development,inadequate milk supply to meet world dairy demand now and into the future, an NZ dairy sector dominated by a major global milk supplier in Fonterra short of supply, and a whole host of other rising business costs mean the cheaper cost of dairy farming in places like Uruguay make the future of NZ Farming Systems very exciting.

If we look at the way New Zealand's biggest company Fonterra operates, we see that they control a large amount of the worlds milk supply. Much of that milk supply comes from outside New Zealand because we simply cannot produce enough milk solids to keep up with world demand for dairy produce.

NZFSU is a great first step for a listed New Zealand company to take a part in the growing dairy boom. India and China are increasingly becoming dairy consumers and investors in NZFSU will be well placed to reap the financial rewards as the market becomes more mature in Uruguay.

The cheaper cost of doing business in this infant market, with lower land, labour, tax and other ongoing costs, and its geographical position closer to already big dairy consumers like mainland USA, give clear business advantages to the early entrants into new dairy producer markets.

Unlike Fonterra though, mum and dad investors are able to take a stake in NZFSU by buying a chunk of its listed shares.

Fonterra shareholders, dairy farm owners, decided to put off a partial float of their company in a meeting held last year, so buying NZFSU or PGG Wrightson shares is the only way kiwis can get a stake in New Zealand's biggest industry.

It may well be one of the best long term investments one could make considering current and future dairy demand.

Related Links

NZ Farming Systems Uruguay - Investor relations
PPG Wrightsons


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