Farmers praised for ability to cut costs

Dairy farmers have been praised for their progress in reducing their costs of production. Photo:...
Dairy farmers have been praised for their progress in reducing their costs of production. Photo: Christine O'Connor.
Not surprisingly, the 2015-16 dairy season has been officially declared the most challenging year yet for dairy farmers.

The $3.90 kg/ms milk price was the lowest in more than a decade and affected farmers who were, on average, operating at a break-even cost of $5.25 kg/ms, figures released at DairyNZ’s recent annual meeting in Ashburton showed.

Despite an obvious shortfall in farm income, farmers made positive steps in reducing their costs of production, chairman Michael Spaans said.

In August, DairyNZ revised the average farm’s break-even cost down to $5.05 kg/ms for 2016-17.‘‘This is a rare positive from a period of low milk prices and something farmers should be immensely proud of.

"Farmers" abilities to sharpen the pencil and remain focused is key to maintaining our industry’s international competitiveness," he said.

The 2015-16 challenges were compounded by the low milk price in 2014-15. With no significant retrospective payments from the previous season, many farmers in 2015-16 increased debt to cover costs.The previous 2014-15 season had been somewhat buffered by the $8.40 kg/ms price of 2013-14.

In Westland Milk Products’ annual report released last week, chairman Matt O’Regan acknowledged the final net average cash payout of $3.88 kg/ms was disappointing and below break-even point for farmers. The payout also failed to reach the company’s goal of being industry competitive. However, Westland started the 2016-17 season with more product capability and flexibility ‘‘than ever before’’, Mr O’Regan said.

Westland’s reported net loss after tax was $14.5 million for the year ended July 31, reflecting the use of retained earnings. The poor result was due to a higher cost structure in the business — "necessary to support our value-added strategies" — combined with lower than forecast sales of these products due to a mix of commissioning issues and rapidly changing markets, he said.

Revenue decreased $51 million from $639 million to $588 million mainly due to international dairy market prices remaining weak as a result of continued global oversupply.

Total assets for the Westland Group increased $33 million from $538 million to $571 million, with the completion of the construction of the D7 nutritional and UHT plants.  Total equity increased by $34 million to $242 million, due to the positive movement in the hedge reserve, which also increased the equity to asset ratio to 42% up from 39%. The New Zealand dollar remaining ‘‘stubbornly high’’ was also a factor in the company’s economic performance, Mr O’Regan said.

He will step down as chairman and retire from the board at the end of March next year.

Mr O’Regan would stay on until then to give the company ‘‘continuity of governance’’ while new chief executive Toni Brendish established herself in the role, and to allow the board time to identify and plan its future governance needs, he said.‘‘It is vital that Toni has the support of the existing governance structure as she settles into her role.

"By the end of March, she will have a very clear picture of the company, and any major changes she needs to implement to strengthen and grow Westland’s commercial success. This will be the best time for her and a new chair to begin working together," Mr O’Regan said.

Mr O’Regan, who has been chairman for the past seven years, would remain a shareholder-supplier of the co-operative through his West Coast dairy farm.

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