The demise of Westland as a cooperative contains a lesson for all business, says Roz Henry, the new Cooperative Business NZ chief executive.
It blames a decline in global prices for dairy commodities, especially butter; Westland’s new predicted payout range is $6.10 - $6.50/kgMS (previously $6.50 - $6.90/kgMS).
Chairman Pete Morrison says the factors driving the revision were largely out of Westland’s control, involving international market forces and an increasing abundance of milk supply globally. He said current indications were that the cooperative would come in about the middle of that range.
“This, of course, will not be news our shareholders want to hear,” Morrison says, “however, we owe it to them to be transparent about our predictions. The last thing we want to do is over promise and under deliver. It’s better Shareholders are prepared now and budget accordingly.”
Morrison said some internal factors were also influencing the payout.
“Ironically, we have had a very good start to the season. However, the build up to peak milk period is higher than predicted and lasting for longer.
“While this might appear to be a positive for the co-operative, the reality is that during peak our processing capacity means we have to produce mostly low value bulk commodity powders in order to ensure we can get the milk through. That means we have to make less high value product, such as Infant and Toddler Nutrition, which give us the best returns.”
Morrison said, however, that Westland was making much improved progress on the matters it had direct control of.
“Westland has the right business strategy with its shift in focus to specialist products produced from milk segregated by qualities such as A2, grass-fed and environmentally sustainable.
“Demand for our Ten Star Premium Standard (10SPS) milk is high and will give good returns. We have enormous interest from international markets and predicted demand outstrips forecasted supply. We need more shareholders to convert to this standard as soon as possible. This type of product will provide much better returns and not likely to be affected by international commodity pricing movements.”