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IN THE MATTER of the Resource Management Act 1991
AND
IN THE MATTER of a Resource Consent Application in the name of HAPPY VALLEY MILK LIMITED
STATEMENT OF SUPPLEMENTARY EVIDENCE OF RANDOLPH EDWARD CASIMIR VAN DER BURGH
ON BEHALF OF HAPPY VALLEY MILK LIMITED
4 December 2017
2
1. QUALIFICATIONS AND EXPERIENCE
1.1 My full name is Randolph Edward Casimir van der Burgh.
1.2 I am a principal at VCFO Group Limited, Chartered Accountants, a
specialist business and financial advisory firm based in Auckland that offers
a full range of business strategy; business planning; forecasting; capital
raising; transaction advisory; fund services; accounting and taxation
services. I am also an investor and director of various New Zealand
companies involved in international trade, global investment, and/or
financial services. I have been an investor and executive director in dairy
related businesses since 2012 and an adviser to this sector for more than
26 years. Prior to co-founding VCFO I was with Ernst & Young for 20 years,
the most recent 10 years as a senior partner both in New Zealand and
Australia. I am a registered Chartered Accountant with a current practicing
certificate and hold a Bachelor of Commercial Administration (First Class
Honours) degree from Victoria University of Wellington. I am a member of
the Chartered Accountants Australia and New Zealand and the Institute of
Directors New Zealand.
1.3 I am a founding shareholder and director of Happy Valley Milk Limited
(HVM) which is part of a group which is currently building a portfolio of dairy
assets in the Asia-Pacific region, including New Zealand. I have been
involved in the resource consent process from the beginning.
1.4 In preparing this evidence, I have reviewed and considered
submissions and statements of evidence of:
• Mr Davies, Harkness Henry, counsel acting for the Social Plan
Incorporated;
• Duncan Coull;
• Kent Morrissey;
• Trevor Walters; and
• Elizabeth Cowan.
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2. STRUCTURE OF SUPPLEMENTARY EVIDENCE
2.1 In this statement of supplementary evidence, I provide as requested by
the Commissioners:
2.2.4 Clarification by Mr van der Burgh or Mr Horan of the capacity of the proposed facilities and the total maximum annual production for which consent is being sought.
3. DESCRIPTION OF CAPACITY AND ANNUAL PRODUCTION
3.1 I refer to the expert evidence of Mr Wilson, Sales Director Tetra Pak (New
Zealand) Limited, dated 4 December 2017, which sets out the capacity and
anticipated annual production for each proposed 8T dryer producing infant
formula and other nutritional milk powder products.
3.2 HVM will produce infant formula and other premium nutritional milk powder
products. Based on HVM’s proposed plant specifications, infant formula
product formulations, and focussing on Stage 3 infant formula (which has
the highest milk content of Stage 1, 2, and 3), each 8T dryer is expected to
process no more than 500,000 litres of fresh milk per day.
3.3 Infant formula plants are built to pharmaceutical specifications and
standards. In essence this means that infant formula plants are significantly
more expensive to build than commodity SMP/WMP plants. To put it
another way, once a plant has been built to infant formula specification, it
is committed to producing higher margin nutritional products like infant
formula in order to earn a requisite return on capital. Such a plant can still
produce commodity SMP/WMP. However, it would be uneconomic to do
so.
3.4 The structure of milk supply contracts in New Zealand is such that once a
milk processor has contracted a dairy farmer, the milk processor
contractually has to take that milk. Once a plant has been built to infant
formula specification and determined the products that it wants to produce,
it will contract the necessary milk supply. As these contracts are long term,
it takes time to increase, or decrease, milk supply to a new plant.
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3.5 In summary, once a plant has been built to infant formula specification, this
will determine quantities of milk supply, oils, minerals, vitamins, and other
ingredients. Such a plant can still produce commodity SMP/WMP.
However, it would not meet return on capital hurdles and it would therefore
be uneconomic to do so.
3.6 Milk inputs are therefore reasonably locked in for an Infant formula plant.
Annual production outputs will depend on HVM’s final plant specifications,
final product formulations across Stage 1, 2 and 3 infant formula per brand
(the plant will produce more than 1 brand of infant formula), other nutritional
powder products and anhydrous milk fat (AMF) produced from the cream.
HVM’s product formulations are commercial sensitivity and HVM has to
balance providing enough detail at this point to satisfy the “effects” tests
under the RMA, without undermining HVM’s commercial imperatives.
However, based on current design specifications, HVM’s output per 8T
dryer could be 30,000 MT to 40,000 MT per annum.
3.7 In his statement of evidence dated 22 November 2017 Mr Coull refers to
50,000 MT per annum output per dryer. This is a theoretical output number
per dryer producing infant formula. Actual operating capacity per dryer
based on HVM’s plant design specification, product formulations, milk
collection methods, and planned processing days, means that HVM’s
output per 8T dryer, as noted, could be 30,000 MT to 40,000 MT per
annum, across a range of products. Mr Coull’s statement of evidence does
not take into account HVM’s actual planned product range. And nor can it
because HVM has not disclosed its planned product formulations (on
grounds that these are commercially sensitive). This has a knock-on effect
on most of Mr Coull’s other numbers in his statement of evidence, some of
which are over-stated by up to 60%.
3.8 Mr Coull, Chairman of the Fonterra Shareholders’ Council, submitted as a
“local resident, ratepayer and active member of the community.” Mr Coull’s
statement of evidence traverses a wide range of topics, demonstrating a
deep technical understanding of each subject matter (including socio-
economic effects). It is unfortunate that the source of Mr Coull’s facts and
figures were not, in the main, referenced, as one would normally expect
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given the detail discussed with some authority. Not knowing the source of
Mr Coull’s facts and figures makes it difficult for HVM to comment further
on Mr Coull’s assumed output numbers.
3.9 The submissions of Mr Davies, Mr Morrissey, Mr Walters; and Mrs Cowan
are all based on milk supply numbers for a commodity plant built to
SMP/WMP specification. This requires 1,200,000 – 1,400,000 litres of
fresh milk per day per 8T dryer. As noted, HVM is building a plant to infant
formula specification which means that each dryer is expected to process
no more than 500,000 litres of fresh milk per day. This has a knock-on
effect on most of the other numbers in their submissions, some of which
are over-stated by up to 180%.
3.10 The submitters state that they relied on information supplied by Mr Nick
Cowan, Mrs Cowan’s son, employed by Tetra Pak in the UK. As confirmed
by Mr Wilson, Sales Director Tetra Pak (New Zealand) Limited:
“If, indeed, Nick Cowan provided any statements or information about
this case, he was not, to the best of my knowledge, authorized by
Tetra Pak to do so.”
3.11 Mr Davies, Harkness Henry, acting for the Social Plan, adopts the
submissions and evidence of Mr Coull, Mr Morrissey, Mr Walters, and Mrs
Cowan. Mr Davies, therefore, also uses the incorrect milk supply numbers
and incorrect output numbers and consequently draws incorrect
conclusions.
3.12 The nature of HVM’s annual production has a significant impact on the
socio-economic effects of the proposed HVM plant. Dr Nana, in his
Supplementary Brief of Evidence dated 1 December 2017, has addressed
the points raised by Mr Coull and Mr Davies relating to the economic
benefits, in incremental GDP terms, flowing from the production of value-
added, premium, nutritional milk powder products versus commodity
SMP/WMP products.
3.13 Mr Davies, in discussing the social effects of the HVM project, at paragraph
64 of his submission dated 22 November 2017, asks why no project-
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specific analysis on its social impact has been provided. The social impact
assessments of projects cover a range of topics, invariably including the
following, all of which have been considered and provided by HVM:
• Economic Assessment – Completed by Dr Nana, BERL
• Cultural Assessment – Completed by Nehenehenui RMC
• Environmental Assessment – Completed by Aurecon and Wildlands
• Risk Assessment – Completed by Tetra Pak and HVM
• Hazard Assessment – Completed by Tetra Pak
• Project Policy Evaluation – Macro: The Government has set this
through DIRA – 25% of milk processing in New Zealand should be
conducted by independent milk processors to meet competition
policy objectives (Fonterra still controls 84% of the market)
• Project Policy Evaluation – Micro: the social impact of not attracting
new business to Otorohanga is provided in ODC’s Long Term Plan.
3.14 HVM relies on ODC's Long Term Plan to illustrate the socio-economic
effects of not attracting new businesses to Otorohanga. Given the author
(ODC) and the topic (Otorohanga’s strategic plan), it is entirely appropriate
to refer to this ODC document which specifically analyses the socio-
economic effects on Otorohanga of not attracting new businesses to
Otorohanga. HVM cannot think of a document which is more on point.
3.15 Dr Nana in his Supplementary Brief of Evidence dated 1 December 2017
states at paragraph 8.5:
As an expert witness I constrain myself to robust and quantifiable evidence. Nevertheless, the significance of such broader potential impacts should not be ignored or discounted. The longer-term challenges facing New Zealand’s smaller settlement areas will require new businesses and entrepreneurs establishing high-value operations. Their ultimate impact on local areas will undoubtedly take many forms and depend on many influences. In turn, their success will, in part, depend on success in revitalising local structures and social networks.
3.16 For an additional third-party perspective of the social effects of stagnation
and decline, Taumarunui provides a local case study. In a recent article,
Francis Fergusson (Stuff Business News, 28 November 2017) wrote:
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“Taumarunui was once a booming rail and timber hub but when the work dried up the people left. At the 2013 census, the town’s population 4,500, living in 2,208 dwellings with an average household size of 2.29. During a visit by Stuff in August, orphaned houses lined the streets of Taumarunui. Most had been without a family since the end of the railway and timber boom in the 1990s. Businesses started leaving, taking jobs and people with them. In 2006, the Taumarunui milk co-op closed, then in 2009 the meat works shut. In 2012 the northern explorer cut Taumarunui from its stop list - no longer would passengers have to stop-off in the forgotten town. Last year, the district lost Kakahi school, a century-old building that could cater for 75 students. The roll went from nine students in 2015 to none in 2016. And earlier this year the Taumarunui lions club shut its doors.”
3.17 For an opposite perspective, we can look to a project of similar size and
specification to the planned HVM plant, the Yashili New Zealand milk
processing plant in Pokeno. One of the directors of lead developer Dines
Fulton Hogan JV, Kerry Dines, provided the following observations on the
social effects of the Yashili plant on the Pokeno township:
“You have asked us (DFH-JV) to provide an insight into the effect of a new dairy factory (Yashili) on the Pokeno township.
By way of background, Pokeno was a small town of 300+ people prior to a plan change to turn it into an urban village with a proposed population of approx. 6000 people. The idea was a defined village edge and feel, with the amenities of an urban area (e.g. services and jobs). There was also a strong emphasis on “live-work-play”, which required zoning for some 2000 additional residential lots, recreational areas and the take up of industrial land by new businesses to provide local employment.
DFH is the lead developer and driver of the Pokeno plan change and infrastructure development. We owned around 40% of the industrial land and circa 80% of the residential land.
Below are some comments regarding Yashili’s impact on Pokeno:
• Provided the catalyst for upgraded infrastructure spend, including water & wastewater facilities, roading, improved rail crossings, etc. Amenities such as stream planting, walkways and significant reserve areas have also been an integral part of the development.
• Was the first industrial purchaser attracted to Pokeno. Since then, the industrial land sales have met expectations. We attribute a considerable amount of this interest in Pokeno industrial land to
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Yashili, both directly and indirectly as their profile and the significant investment they have made in the area has no doubt attracted other businesses to the area.
• There has been a marked uptake in the level of business for all commercial enterprises in Pokeno, albeit it is hard to know how much is contributed by the Yashili build and ongoing operations. No doubt it is a substantial contributor to this however. This increased activity has also helped speed the implementation of other services, such as retail, medical, etc.
• The dairy factory was supported by the local residents from the outset and, from the feedback we have received, the local approval has only increased. Dairy factories often attract a significant number of visitors, workers, technical contractors, “infant formula tourists”, international management, etc, so this has added to the recognition of Pokeno.
• We do not have insight into the dairy factory’s employment of local people but we understand a number of staff live locally. The indirect effect on economic activity and resulting employment is probably a bigger benefit however. There is no doubt that the town is achieving its aims of have a certain proportion of residents living and working in the township.
• Property values have increased significantly over the last 5 years albeit that Pokeno is still a very affordable place to live compared to its much larger neighbours. All the residents of Pokeno have benefitted from this rise in land prices. Again it is hard to attribute this rise directly to anyone or thing, however the general attractiveness of Pokeno as a place to live has been rising. A key part of that attractiveness is the increased industrial activity.
• We do not have a social impact report, nor do we think we need one. Before development occurred there was a general feeling of a town that was dying. The motorway had bypassed Pokeno and taken the bulk of transit activity with it. We believe the development, of which Yashili’s dairy plant is a huge part, has been a major positive for Pokeno. There is a positive vibrancy about the town and I think the vast majority of residents are proud of what it has become and where it is heading. Again, we have no measure of this, other than overwhelmingly positive feedback from new residents in Pokeno.
I trust this is of some assistance.”
3.18 As a final additional comment regarding the HVM’s proposed output, Mr
Coull (and others) cite foreign ownership as a negative effect. Of course,
foreign ownership is a matter for the Government to manage through the
Overseas Investment Office.
3.19 HVM’s proposed output of premium, nutritional milk powder products, will
be exported to global markets. HVM’s project requires a substantial amount
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of capital both for construction and on-going operations. As has been
demonstrated recently by Oceania Dairy (Yili), Yashili New Zealand Dairy,
and Mataura Valley Milk, New Zealand’s capital markets are not deep
enough to fund independent milk processing projects. In order to give effect
to the policy objectives of DIRA, whilst HVM will seek to source as much
capital as possible from local sources, including its own, HVM will also
require foreign capital in order to build a strong, local, independent milk
processor selling premium milk powder products in global markets.
3.20 By way of comparison, Yili, Yashili, and Mataura Valley Milk are 88% -
100% foreign owned. Even Fonterra and Synlait, excluding farmers, are
respectively 78% and 85% owned by foreign institutions (refer table
below). With regard to Fonterra in particular, the non-farmer share pool
(units) is capped at 25% of total farmer and non-farmer shares/units. Of the
25%, 10% is reserved to provide liquidity for Fonterra farmers and 15% has
been issued to the public. 78% of the units issued to the public are owned
by offshore institutional investors.
Company Institutional ownership
Foreign Institutional
Domestic Institutional
Total Foreign Ownership
Glanbia 57% 45% 55% 26%
Danone 54% 77% 23% 41%
Kerry Group 45% 69% 31% 31%
Reckitt & Benckiser (Mead Johnson) 82% 77% 23% 63%
Fonterra 13% 78% 22% 10%
Synlait 67% 85% 15% 57% Source: HVM own research
4. CONCLUSIONS
4.1 Mr Wilson, Sales Director Tetra Pak (New Zealand) Limited, in his
statement of evidence dated 4 December 2017, sets out the capacity and
anticipated annual production for each proposed 8T dryer producing infant
formula and other nutritional milk powder products.
4.2 HVM will produce infant formula and other higher value nutritional milk
powder products. Based on HVM’s proposed plant specifications, infant
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formula product formulations, and focussing on Stage 3 infant formula
(which has the highest milk content of Stage 1, 2, and 3), each 8T dryer is
expected to process no more than 500,000 litres of fresh milk per day.
4.3 Annual production outputs will depend on HVM’s final plant specifications,
final product formulations across Stage 1, 2 and 3 infant formula per brand
(the plant will produce more than 1 brand of infant formula), other nutritional
powder products and anhydrous milk fat produced from the cream.
However, based on current design specifications HVM’s output per 8T
dryer could be 30,000 MT to 40,000 MT per annum.
4.4 The nature of HVM’s annual production has a significant impact on the
socio-economic effects of the proposed HVM plant. Dr Nana, in his
Supplementary Brief of Evidence dated 1 December 2017, has addressed
the points raised by Mr Coull and Mr Davies relating to the economic
benefits, in incremental GDP terms, flowing from the production of value-
added, premium, nutritional milk powder products versus commodity
SMP/WMP products. Additional evidence of the social effects on the
Pokeno township were provided by Kerry Dines, director Dines Fulton
Hogan JV.
4.5 HVM’s proposed output of premium, nutritional milk powder products, will
be exported to global markets. HVM’s project requires a substantial amount
of capital both for construction and on-going operations. In order to give
effect to the policy objectives of DIRA, whilst HVM will seek to source as
much capital as possible from local sources, including its own, HVM will
also require foreign capital in order to build a strong, local, independent
milk processor selling premium milk powder products in global markets.
5. ATTACHMENTS
5.1 Email from Kerry Dines, 29th November 2017
Randolph van der Burgh
4 December 2017
1
Randolph van der Burgh
From: elliot worrall <[email protected]>Sent: Wednesday, 29 November 2017 9:30 PMTo: Randolph van der BurghSubject: FW: Pokeno Development
Hi Randolph, Kerry has had trouble sending the email to your address and asked me to forward it on to you instead. I hope it is what you are after. Regards Elliot
From: Kerry Dines [mailto:[email protected]] Sent: Wednesday, 29 November 2017 3:53 p.m. To: elliot worrall Subject: Pokeno Development Randolph,
You have asked us (DFH-JV) to provide an insight into the effect of a new dairy factory (Yashili) on the Pokeno township.
By way of background, Pokeno was a small town of 300+ people prior to a plan change to turn it into an urban village with a proposed population of approx. 6000 people. The idea was a defined village edge and feel, with the amenities of an urban area (e.g. services and jobs). There was also a strong emphasis on “live-work-play”, which required zoning for some 2000 additional residential lots, recreational areas and the take up of industrial land by new businesses to provide local employment.
DFH is the lead developer and driver of the Pokeno plan change and infrastructure development. We owned around 40% of the industrial land and circa 80% of the residential land.
Below are some comments regarding Yashili’s impact on Pokeno:
Provided the catalyst for upgraded infrastructure spend, including water & wastewater facilities, roading, improved rail crossings, etc. Amenities such as stream planting, walkways and significant reserve areas have also been an integral part of the development .
Was the first industrial purchaser attracted to Pokeno. Since then, the industrial land sales have met expectations. We attribute a considerable amount of this interest in Pokeno industrial land to Yashili, both directly and indirectly as their profile and the significant investment they have made in the area has no doubt attracted other businesses to the area.
There has been a marked uptake in the level of business for all commercial enterprises in Pokeno, albeit it is hard to know how much is contributed by the Yashili build and ongoing operations. No doubt it is a substantial contributor to this however. This increased activity has also helped speed the implementation of other services, such as retail, medical, etc.
The dairy factory was supported by the local residents from the outset and, from the feedback we have received, the local approval has only increased. Dairy factories often attract a significant number of visitors, workers, technical contractors, “infant formula tourists”, international management, etc, so this has added to the recognition of Pokeno.
We do not have insight into the dairy factory’s employment of local people but we understand a number of staff live locally. The indirect effect on economic activity and resulting employment is probably a bigger
2
benefit however. There is no doubt that the town is achieving its aims of have a certain proportion of residents living and working in the township.
Property values have increased significantly over the last 5 years albeit that Pokeno is still a very affordable place to live compared to it’s much larger neighbours. All the residents of Pokeno have benefitted from this rise in land prices. Again it is hard to attribute this rise directly to anyone or thing, however the general attractiveness of Pokeno as a place to live has been rising. A key part of that attractiveness is the increased industrial activity.
We do not have a social impact report, nor do we think we need one. Before development occurred there was a general feeling of a town that was dying. The motorway had bypassed Pokeno and taken the bulk of transit activity with it. We believe the development, of which Yashili’s dairy plant is a huge part, has been a major positive for Pokeno. There is a positive vibrancy about the town and I think the vast majority of residents are proud of what it has become and where it is heading. Again, we have no measure of this, other than overwhelmingly positive feedback from new residents in Pokeno.
I trust this is of some assistance.
Regards
Kerry
Kerry Dines
Director
DFH-JV