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. Continue reading “Dairy industry profits are a bright spot in an economy headed for recession”
Synlait Milk’s updated forecast milk price— now $7.25kg/MS, up from $7kg/MS —renews pressure on Fonterra to hit the upper limit of its own forecast.
For the industry as a whole, the higher milk payouts underline the strong global demand for NZ dairy products. And they provide some welcome sunshine into many of the county’s dairy sheds.
When Fonterra in December flagged it was aiming for the midpoint of its $7 to $7.60 forecast range, it said that a $7.30 milk price would be the fourth highest in its nearly two decades of operation.
That $7.30kg/MS is comfortably ahead of Dairy NZ’s estimate of break-even for Fonterra’s suppliers of $5.95.
But now Synlait is saying is it has raised its forecast payout on the back of higher than expected commodity prices at the end of 2019. It believes those will hold in the medium term as supply and demand continue to be evenly matched. Continue reading “Payout perplexity – more money for farmers would impede Fonterra’s financial recovery”
The contrasting fortunes of Synlait Milk and Westland Milk Products were thrown into sharp relief last week. On the one hand Synlait won applause at its annual meeting from shareholders, impressed by its performance in virtually doubling profit ($74.6m against $39.4m) in its tenth year of operations. On the other hand Westland had the begging bowl out for a Provincial Growth Fund loan of $9.9m which will help the co-op in funding a $22m manufacturing plant aimed at converting milk to higher-value products.
The Westland dairy exporter, discussing a capital restructure in its 2018 annual report, said it had relatively high debt and limited financial flexibility.
Commenting on the PGF loan, chief financial officer Dorian Devers is reported as saying the co-op could have financed the project in other ways “but the terms we have been given from the PGF are more favourable. It’s a longer-term loan than we can get from a bank which is nice”.
The NZ Herald quoted economic consultant and former ANZ Bank chief economist Cameron Bagrie as saying the loan sets a “dangerous precedent”. He reckons it appears to be corporate welfare. Continue reading “A tale of two milk companies – one of them is being suckled by taxpayers”