1. The news that mattered this morning

Regional Economic Development Minister Shane Jones shortly after talking to journalists in Parliament. Photo by Lynn Grieveson.

Regional Economic Development Minister Shane Jones accused Fonterra of being disconnected from farmers and called on Chairman John Wilson to resign. The US Federal Reserve raised its key cash rate to around 2.0 percent and signaled two more hikes this year. This if the first time New Zealand's OCR has been below America's official rate.

'I've had a bloody gutsfull'

Regional Economic Development Minister Shane Jones launched an extraordinary attack on Fonterra's performance and governance at Fieldays yesterday, and then repeated the comments to journalists in Wellington after a select committee hearing in Parliament. He called on Chairman John Wilson to step down.

"The leadership of Fonterra I believe, starting with the chairman, is full of their own importance and have become disconnected," Jones said.

"I've been bloody disappointed that Fonterra, in my view, their leadership have not accepted there's been a new Government and there's a new narrative, and I've had a gutsfull of them believing they're bigger than what their writ really is," he said.

"Okay, the CEO has gone, well, that's only one party of the double-dutch that we'd have to put up with in Fonterra over the last nine years," he said.

"I thoroughly believe this, and I've said it elsewhere, as the CEO leaves Fonterra, the chairman in quick order should catch the next cab out of town."

Jones said he was worried about "the absolute absence of accountability for the enormous amounts of dough that the current Fonterra chairman has presided over."

He wants the company to "focus less on interfering in politics and more on justifying the money they've lost overseas".

"I believe that they have become disconnected from the farming community and I said in front of Mr John Wilson that I have requested the Minister of Agriculture - when he looks at his dairy restructuring - identify the issues and whether or not it's time for us to look at a restructuring of Fonterra."

The Government is reviewing the Dairy Industry Restructuring Act (DIRA) , including whether to continue forcing Fonterra to accept milk supplies from any farmer and continuing to force it to supply milk to its competitors.

Newsroom columnist Rod Oram wrote earlier this month about a push by some in Fonterra's leadership to break up Fonterra into processing and brands arms, along with debate over whether Wilson should stay on as Chairman when he comes up for re-election in November.

An exit of Wilson would likely spark a full debate by shareholders and the upper echelon of the company about whether it should be broken up and sold off to help the most debt-laden farmers repay debts that the Reserve Bank has told banks are too high.

'No economist super-powers'

For good measure, Jones then attacked economists who had said the Government's ban on new offshore drilling permits could hurt the economy.

"Economists are guesstimators. Not all economists are good at mathematics and those that are tend to show us that statistics can tell you any lie," he said, adding the status of economists had been elevated to "high priests of the modern political economy."

"I'd rather listen to ordinary business people, firm owners. No, I don't buy into this school of thought that the economists are somehow endowed with supernatural powers."

National Party economic development spokesman Paul Goldsmith said Prime Minister Jacinda Ardern should rein in Jones, who was putting his own ego and need for publicity ahead of the interests of the country.

Regulator pressures Fonterra too

Fonterra can feel under attack from all quarters this morning.

The Commerce Commission, which runs the milk price monitoring regime, reported this morning that Fonterra's calculation of the milk price may be too high because its estimate of the cost of capital was too low.

The Commerce Commission released an emerging view that Fonterra’s estimate of risk in calculating the cost of financing milk processing operations was too low.

"The impact of this is that Fonterra calculates a higher milk price than would be the case if it used a more feasible allowance for risk in the cost of finance, consistent with other processors," the Commission said.

“For several years now Fonterra has been unable to provide sufficient evidence to convince us that using a lower asset beta than comparable processers is justified,” Commission Deputy Chair Sue Begg said.

The Commission called for submissions on the emerging views paper. It is due to publish a draft paper in August and a final paper in September.

The Government's DIRA review is due to report back to the Government early next year before legislation later in 2019.

US rates rising

In a key moment for the global economy and financial markets, the US Federal Reserve announced its second interest rate hike this year and signaled two more later this year. This was one more than previously signaled and one more than most in the markets had expected.

This lifted US short term official interest rates to 2.0 percent, which is above New Zealand's 1.75 percent Official Cash Rate for the first time since the advent of the OCR in 1999, as the chart above shows.

The central bank of the world's biggest economy also forecast three more rate hikes next year. The US stock market fell slightly and the New Zealand dollar fell a quarter of a cent to 70.2 USc.

Our Reserve Bank is not expected to hike rates here until late next year at the earliest. If the Fed carries through with its forecasts, which it hasn't for the last decade because inflation was always lower than expected, then there is the prospect of US interest rates being above 3.0 percent while New Zealand is stuck at 1.75 percent.