1 Oct 2014

Westland confirms lower milk payout

2:44 pm on 1 October 2014

The size of the milk payout which New Zealand's second biggest dairy co-operative has declared for the past season has left its 434 suppliers smarting.

Westland Milk Products has confirmed a final milk payout for the 2013-14 season of $7.57 a kilo of milk solids, from a 46 percent increase in revenue.

It is one of the co-operative's highest payouts, but well below what other companies have paid in a record breaking year.

By comparison, Fonterra delivered a milk price of $8.40, plus dividend, while the smallest cooperative, Tatua, topped the lot with a $9 per kilo payout.

Westland's chief executive Rod Quin said today that it could could not compete with other companies' payouts last season because of its product mix.

"So what sits in behind that is the price and the value that whole milk powder returns to the dairy companies, and Westland doesn't produce a lot of whole milk powder compared with other companies. It's 10 percent of our product mix. In other companies, that's as high as 50 to 60 percent, so it went against us for the season."

However, Mr Quin said it is a different story this season. With a big slide in international dairy prices, including whole milk powder, Westland is back in the ball-park with most other companies in terms of its forecast payout.

"We're at $5.40 to $5.80 and at the current state that's very competitive with our larger cousins. So we're back to something that we would consider more normal with products that Westland produces in greater volumes than whole milk powder, like casein and skim milk powder, returning higher values from the market place at the moment.

"So if that continues, that means we'll have a very competitive payout, as it was two years ago. "

However, Westland is moving to reduce its reliance on commodities like casein and skim milk powder. It is increasing production of ingredients for nutritional products such as infant formulas, with a larger drier due to come on stream in August next year.

The company also announced plans for a $40 million UHT, or long-life, milk plant at Rolleston in Canterbury.

"The market for UHT at the moment is still largely driven up through Asia and predominantly China at the real value end. We do have an office set up now in Shanghai and it's been part of the strategy to show that we are committed to the market place and understand it and we've got three fulltime Chinese employees now.

"The focus is on China, but there will be opportunities to supply UHT milk to southeast Asian markets as well."

Tatua growing

The country's smallest dairy co-operative, Tatua, is growing a little bit bigger. The Waikato-based company has been collecting milk from just 109 farms.

It supplied more than 13 million kilograms of milk solids last season, receiving the cooperative's highest ever milk payout of $9 per kilo - an industry record.

Chief executive Paul McGilvary said Tatua is boosting its milk supply by signing up more farms.

Mr McGilvary expected that the new season would be a lot more challenging. Like other dairy companies, Tatua is forecasting a significantly lower payout. That currently stands at $6.50 per kilo.

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