Dairy industry profits are a bright spot in an economy headed for recession

NZ’s  dairy  industry, under constant  fire from critics for its methane emissions,  pollution of  waterways  and  intensive farming practices in recent years, almost  overnight  is shaping up   to be one of the  country’s  saviours  as the economy dives into  recession.

While  other   key export sectors — tourism, forestry, education — are jack-knifed by the  coronavirus  pandemic,  the dairy industry’s earnings  more than ever before are proving it to be  what the  critics  have scorned:  “ the backbone of the economy”.

The  much  maligned Fonterra Co-op  this week  reported total group sales revenue in  the  six months to  January 31 increased by 7% or $678m to $10.4bn, mainly due to improved pricing and the product mix  sold.  That  compared with  $9,745bn  in the  January  2019  half.

And  Fonterra  is  keeping its  farmgate  milkprice  forecast   in the $7-$7.60 /kg  range.  That  means  more than $11bn  being paid to  its suppliers.

The co-op’s  net  profit  of  $293m  was a big  turnaround  from the  $72M  in the previous  year.

And though global  dairy trade  auction  prices have weakened, the fall in the  NZ  dollar against  its US counterpart  suggests  returns  can be sustained.

Fonterra  last year   reported  a full-year record loss of $605m,  then launched  a massive reorganisation  of its  operations as well as  reducing debt in a  back-to-basics approach.

CEO   Miles Hurrell  is talking up a  more dynamic  approach to  its investment  portfolio.

We need to  get to a mindset that if we buy an asset or develop something new, to keep continually reviewing it and  asking if this is the right time  to harvest it and move out”

 Commenting  on the  impact that  coronavirus had on Fonterra’s ability  to  get product into  China, Hurrell   reports there   have been  delays,  but  nothing of  concern  in terms  of landing product there.

That  matches   what  A2 Milk  earlier reported  on the  impact of  the coronavirus outbreak  that

“ … product  is flowing and products  such as ours are getting  priority for  clearance at  ports”.

A2’s  half-year  revenue  rose  31.6%  to  $806m,  and  it  is  looking at  manufacturing  in its  own right, due to the increased scale of  its infant nutrition  business.

A2 Milk  has a stake in  Synlait Milk  which   this  week reported   revenue in  the January  half  rose  19%  to  $559m,  with sales  of  consumer-packaged infant   formula  rising  22%.

Point of  Order   has not sighted  reports of  how  other  dairy  producers   like Open Country, Tatua,  Westland  and  Oceana are faring  but  we reckon it is  as fair bet  they too have  solid  results from their exports.

The overall performance of the dairy industry, and their  suppliers, begs the  question:  how  would the  country’s  balance of payments be looking without  them?

3 thoughts on “Dairy industry profits are a bright spot in an economy headed for recession

  1. For three years the wretched Coalition have thrown every obstacle they can in the way of dairy farmers. They have tied them up in mindless regulation and slandered them through “climate change” brainwashing in the schools. The Coalition’s actions have had a serious impact on farmers’ morale and sense of self-worth, even driving some to suicide. And now the farmers come to save our economy in a time of crisis. Will they get any acknowledgement or thanks from the Coalition? Not from these Far Left ideologues.

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