Westland farmers are better off
Despite low payout returns for the past three years, Westland Milk Products shareholder-supplier Stu Bland says he’s done the sums and wouldn’t be better off joining Fonterra.
That’s even if he could, with many Westland Milk Products (WMP) suppliers tied to the cooperative because of their geographical isolation.
At a payout of $6.07 a kilogram of milksolids after a 5 cent company retention for the 2017-18 season, Bland would have been $77,000 better off it he’d been supplying Fonterra or Synlait, which both paid 50 cents/kg more.
However, as Westland’s shares had been $1.50/kg for many years, entry costs were lower.
‘‘We’ve looked at it, and I’m sure other farmers have as well, and the difference would not have paid for the Fonterra shares. Eventually you have to share up with Fonterra,’’ the Federated Farmers’ West Coast dairy chairman said.
‘‘Everyone is in different circumstances.’’
Fonterra shares, which fluctuate on the NZX, were $4.81/kg on November 13, down $1.49 on a year ago. The record high was $8.09 in May 2013.
‘‘It depends on which Fonterra share price you are basing your calculations on. If you had switched, at best you would be breaking even, or at worse you still owe money on Fonterra shares. It’s not simple and its not cut and dried. Once you are a fully sharedup Fonterra supplier you receive the milk price plus dividend.
‘‘A lot of farmers chose for Westland to stay on its own when Fonterra was formed. Westland is making progress to make its payout more competitive. The gap is definitely closing,’’ the Grey Valley farmer said.
‘‘It’s a beautiful place to make a food product.’’
WMP’s number of shareholder suppliers dropped to 429 in 2017-18 from 435 the previous season. Twelve suppliers in Canterbury and the Springs Junction/Murchison area were believed to have switched to Fonterra at the start of this season. On the flip side, Southern Pastures joined WMP at the start of this season, its nine Canterbury farms adding an extra 4 million kg of MS to its annual milk collection.
A partial sale or cornerstone investor is on the cards for WMP as it seeks outside capital to improve its profitability and payout.
Chairman Pete Morrison said if the co-operative was to ‘‘realise all the opportunities in front of us we need access to new and increased capital’’.
‘‘The board is conscious that we have relatively high debt levels and limited financial flexibility. It is therefore timely to look ahead and consider all options that can provide a sustained higher payout and improve shareholders’ and the co-operative’s financial flexibility. Obtaining new capital would make a significant difference.’’
For the past three seasons the dairy co-operative had struggled to make a profit and had New Zealand’s lowest payout to shareholder-suppliers. Its primary focus was to deliver a competitive payout this season.
Its board will give shareholders a first progress report on the capital structure review at the company’s annual general meeting in Hokitika on December 5.
‘‘The main focus of the update will be on the process itself, as we cannot comment on the parties involved, or their areas of interest,’’ Morrison said.
‘‘The board will only bring an option back to shareholders if it believes it will deliver on the principles of a competitive payout and that shareholders will back it,’’ Morrison said.
‘‘The board is conscious that we have relatively high debt levels and limited financial flexibility.’’ Pete Morrison