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External factors reduce Westland’s forecast payouts

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MEDIA RELEASE – Friday 3 August 2012

External factors reduce Westland’s forecast payouts for the 2012-13 dairy season

Westland Milk Products today announced its 2012-13 season forecast to supplier-shareholders has been revised down from a budgeted $5.70 - $6.10 per kilogram of milk solids (kgMS) to $5 - $5.40 per kgMS.

Chief Executive Rod Quin says the reduction is due to international prices for dairy products being 10 to 15 per cent below expected levels.

“This is compounded by the ongoing high rate of the New Zealand dollar, at around 80cents against the US dollar, which results in fewer New Zealand dollars available for pay-out.”

With farmer shareholders on the West Coast and in Canterbury, Westland Milk Products is the biggest dairy cooperative in New Zealand next to Fonterra, processing some 600 million litres of milk a year and with an annual turnover of $525 million. Mr Quin says the reduced payout will have an impact on rural communities, with farmers bearing the brunt but, overall, dairying is still the right industry to be in and the co-operative is in good shape.

“This situation highlights the importance of our strategy of moving significant milk volumes away from the commodity markets into specialist nutritional products, which will give us better returns and greater stability. The nutritional products market is growing and we are taking advantage of that to the ultimate benefit of shareholders.”

Mr Quin says the colostrum market is also in the doldrums due to an oversupply from the United States and changes in food regulations in China.

“Most of our colostrum is sold to China into the child nutrition segment of the market. Recently Chinese authorities regulated against the addition of colostrum to child nutritional products, which has led to a significant reduction in demand. As a result there needs to be a reduction in the collection period this season and there will also be reduced payments for the colostrum we do collect.”

Mr Quin says that although Westland Milk Products is working hard to secure sustainable long term customers for its colostrum, the market is likely to remain volatile for the foreseeable future.

“It’s also important to remember that the factors driving the reduced payouts for milk solids and colostrum are almost entirely external and not exclusive to Westland Milk Products. This situation impacts on the whole of the New Zealand dairy industry. There are also encouraging signs that prices will firm, with the latest GDT price index increase of 35% a positive sign.”

ENDS

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