Coutts appointed chair-elect of Mainland Group
Fonterra has named Elizabeth (Liz) Coutts the chair of Mainland Group, the proposed divestment entity of the co-operative’s consumer business.
The revenue range/kgMS of New Zealand’s dairy companies is remarkably wide – from Tatua’s $18.58 to Fonterra’s commodity return of $5.81 – says a new report on the dairy industry.
‘New Zealand Dairy Companies Review’, published in April by TDB Advisory (TDB), reviews the performance of Fonterra’s milk processing competitors in NZ, the four that make their financial reports public – OCD, Synlait, Tatua and Westland. Each is a major company in its own right.
The revenue range reflects the differing strategies of the various companies, TDB says.
Among Fonterra’s competitors Tatua is recognised as having a strong focus on high-value ingredient products while Open Country Dairy (OCD) has a strong focus on commodity products, TDB says. In between are Synlait, with its specialty ingredient business-to-business strategy, and Westland which produces both commodity products and consumer products.
Tatua has invested more than any of the other companies to generate higher sales per kgMS, while OCD has invested the least, TDB says. However, revenue generated per kgMS is only part of the consideration and doesn’t reconcile with profitability.
TDB’s figures show OCD as the lowest-cost operator at $2.35/kgMS while Tatua is the highest at $11.26. Synlait’s operating costs are $4.51/kgMS and Westland’s $5.57.
The report says the industry and various commentators have for many years referred to the possibility of growing the value-added component of milk sales, but that might be difficult.
“Fonterra processes over 1.5 billion kgMS in NZ and if the co-op was to manufacture a similar product mix to Tatua, even if it could, it would require an extra investment of over $7b in fixed assets (to at least double its current investment in NZ plant and equipment).
“This would equate to an additional investment of about $675,000 per farmer-shareholder, with no guarantee of success. Operating costs will be lower for the commodity processors but there is not enough public information for us to make direct comparisons,” the report says.
While Fonterra remains the dominant processor in NZ, its share of ‘new’ milk is estimated to be two thirds, the report says.
“Their respective amounts of new committed processing investment and access to capital indicate the competing companies are likely to continue to grow faster than Fonterra.” Fonterra’s market share could fall from 84% to 79% over the next five years.
TDB estimates the combined value of the assets of Fonterra’s competitors is at least $2b and their revenue exceeds $2.5b.
With combined annual sales of about $2.3b (for 2016), the four companies collectively account for 90% (by milk volume) of the milk processed by Fonterra’s competitors in NZ.
The report says Fonterra’s competitors have grown their milk volumes by about 10% on average over the last five years: OCD has growth of 10%, Synlait 7%, Westland 6%, Tatua 4%, Miraka an estimated 10% and Oceania an estimated 15%.
Other growth points to note include:
• Synlait’s September 2016 capital raising and news of a $300m capital expansion project over three years
• OCD’s recent news that it is preparing to build a new powder plant at Horotiu, Waikato, for the start of the 2018-19 dairy season. It will have capacity for 250m L of milk, an increase of 20% on 2016 volumes
• Oceania’s intention to triple in size to 630m L by 2019. The report notes that its catchment area includes the Hunter Downs irrigation scheme, whose construction is expected to markedly increase milk volumes on farms
• Westland’s current performance review indicating a lower cost structure.
The report says if the annualised industry growth in milk volumes over the next five years is (as Fonterra and DairyNZ expects) in the 2-3% range and Fonterra’s competitors maintain their 10% growth rate, their market share will increase from the current 16% to 21%.
Oceania, Yashili and Miraka were not covered in detail in the report.
It did not include Miraka because its financial statements are not public.
Rural retailer Farmlands has launched a new casual clothing range available across 42 stores nationwide and through its online store.
Federated Farmers says the health and safety changes announced this week by the Government represent the start of overdue reforms.
The Government is calling on rural New Zealanders to share their views on proposed regulations designed to improve the management of farm plastic waste.
For many urban New Zealanders, stepping into Pāmu’s Pinta dairy farm near Taupo last month was the first time they had had the chance to experience farm life up close.
After tasting 240 New Zealand made cheeses, judges have bestowed medals upon 199 of the entries.
Bay of Plenty’s top share farmers Andre and Natalie Meier are no strangers to the New Zealand Dairy Industry Awards winning circle.
OPINION: At last, a serious effort to better connect farmers and scientists.
OPINION: If you believe Maori Party president John Tamihere’s claim that “nothing dodgy” occurred at Manurewa Marae during the last…