Wednesday, 1 October 2008

Westland sets new record dairy payout

Source: National Business Review

The tiny West Coast dairy cooperative, Westland Milk Products, has announced a record payout of $8.29/kg milksolids -- the highest in the nation and unlikely to be bettered for years.
Company chairman Ross Scarlett said today the figure included costs paid on behalf of suppliers (2c/kg milksolids) and an average colostrum payment of 5 cents/kg milksolids.

Industry giant Fonterra has paid its farmers $7.90 for the same season, and Tatua Cooperative Dairy Company yesterday announced a payout of $8.00/kg for its 112 farmers.
The Hokitika-based cooperative's distributable surplus was $356 million for the 2007-2008 season.

"Those figures add up to a company performance of $8.29 c/kg milksolids, a result ahead of projections the company has been making to suppliers during the season," Mr Scarlett said in a statement.

He said shareholders were likely to be "more than satisfied", even though the cooperative had retained 30c/kg for future investments. Fonterra retained 24c/kg and Tatua 37c/kg.
Mr Scarlett said a strong performance by the company played a significant part in the result, but added: "Obviously, buoyancy in international markets was chiefly responsible for the record payout".

EasiYo, a yoghurt company acquired by Westland Milk Products during the 2007-2008 season, was performing well ahead of projections and would be moving to new premises in Auckland, doubling its capacity. Forward sales projections were "most encouraging".

But the record payout was announced just as Westland was plunged into uncertainty over low-level contamination of at least one batch of its highest-priced product, lactoferrin protein powder.

Food safety officials are investigating whether the contamination is coming from the proprietory production process, which Westland acquired in 2002 from Tatua, where contamination has also been found, at levels as high as 4 parts per million. Checks are under way on lactoferrin produced by a third company using the process, Tatura, in Victoria, Australia.

Lactoferrin is highly concentrated, with 10,000 tonnes of milk required to make one tonne of the powder, which is used as a minor ingredient in baby formula and sports drinks because it is claimed to boost immune systems.

Mr Scarlett said the 2008 season's milk flows had finished 2.3 percent ahead of the previous year.

The soaring commodity prices which peaked during the year had since led farmers around the world to increase production, reduced dairy purchases by consumers.

He said the outlook for the current season is clouded by a number of uncertainties.

"It is yet too early to predict the effect which the impact United States financial crisis may have on the global economy," Mr Scarlett said. "But the situation is obviously worrying.

The kiwi dollar is expected to soften further, the costs of farm inputs will rise and commodity prices are unlikely to return to recent peaks any time soon.

Westland Milk Products is forecasting a payout in the $6.70-$6.95/kg milksolds for current 2009 season which will be reviewed at the end of the first quarter.

Fonterra last month trimmed its forecast for the current season's payout to its own dairy farmers, trimming it from $7/kg of milksolids to $6.60/kg, also blaming a downturn in international prices and demand.

This means the average Fonterra farmer is likely to earn $800,000 this year, down from $900,000 last season.

"With Fonterra's recent reduction in forecast for the current season, we may see our projections move down," Mr Scarlett said.


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