Tuesday, 14 June 2011

The economic consequences of no longer being self-sufficient in porridge.

After Goodman Fielder purchased the Flemings range of products in May 2006, production was shifted to Australia and the product was marketed under the Uncle Toby's brand. Otago Daily Times 6 Oct 2006

Flemings was a profitable business making Creamoata Porridge that at the end of its life employed 36 people in a small rural town and was supplied by ten farmers with specialist machinery and infrastructure.  Its sale to the dominant enterprise in the market resulted in it being closed and production shifted to Australia.  Effectively the competition has been bought out.  

The sale gave the former owners a one-off return that reflected a premium for the monopoly rents that would be generated by market dominance.

This sale resulted in a considerable loss to the national economy
  •    The NZ taxpayer had to support 200 people on the benefit for more than a year,
  •     The government lost the tax on the business’s profits
  •     The community economy shrunk through the loss of trade and payroll,
  •     The property market in the town went into a severe decline,
  •     Ten farmers had to find an alternative crop to grow.
  •      Competition in the cereal breakfast food market was significantly reduced
  •   The cost of this sale to the national economy was substantial.  

In addition the country also has to generate $20 Million in additional exports every year to cover the cost of importing what it once made for itself.

The New Zealand economy effectively subsidised the closure of this plant to a level that significantly exceeded the sale price and now has to earn export income to pay for a product that it once produced. 

Sales of businesses to foreign owners generally incur a cost to the national economy that exceeds the benefit from the capital inflow.  Even in the cases where the new owner does not close the business, the business will be operated for the benefit of the owner not the national economy.

We are losers!


  1. I enjoyed this post darkhorse, as it's something that has concerned me for some time.
    I've linked to it and written a little 'promo' over here:


  2. Two excellent links that are a must read

    "National’s determined proposal to sell a large part of the ownership in some of our biggest state-owned assets, relying upon the charm offensive of the populist John Key to coax the electorate into swallowing a dead rat, suggests that it has learnt nothing from the lessons it should have. We've heard all the same assurances before."



    When will the populous wake up?

  3. Speedy Gonzales14 June 2011 at 21:34

    This should interest you darkhorse.