Milk spilt: Only one whey for Westland

The vote to sell Westland Milk Products to Chinese giant Yili was always going to be a done deal. Financially embattled and unable to deliver a competitive payout in recent years, the writing was not only on the wall but scrawled in bold letters.

In March, Westland announced it had signed a conditional agreement to sell the West Coast dairy co-operative to a wholly-owned subsidiary of Chinese dairy giant Inner Mongolia Yili Industrial Group in a deal worth $588million.

There were few options for Westland; the situation could be likened to the joint venture Silver Fern Farms embarked on with Chinese-owned Shanghai Maling a few years ago - another co-operative that needed a substantial capital injection from somewhere, and there was no Plan B.

A strategic review last year found Westland had little option other than selling the business if it wanted to deliver a fair milk price to its suppliers.

In the past three seasons, Westland's milk price has trailed Fonterra's by an average of about 75 cents per kilogram of milk solids. If Westland had been able to match Fonterra during the past three seasons, dairy farmers would have received an extra $140million over that time.

Yili emerged the victor after a process to seek a cornerstone investment, and shareholder approval the transaction required was gained last week. Some said mismanagement left them feeling they had no option but to accept the deal. As fourth-generation West Coast dairy farmer Murray Stewart put it, farmers had been ''jammed in a corner and this looks like the only way out''.

Westland shareholder farmers who were existing suppliers would receive the benefit of Westland's commitment to collect milk and pay a competitive payout of a minimum of the Fonterra farm-gate milk price for 10 seasons from the season beginning August 1 this year.

The sale still requires consent from the Overseas Investment Office and approval from the High Court. Approval from the OIO seems straight-forward given Yili already owns the Oceania Dairy plant, just north of Glenavy.

Yili acquired Oceania Dairy in 2013 and has invested $650 million to significantly increase capacity to produce milk powder, infant formula and UHT production lines and generate export revenue of more than $270million a year.

There were now 318 staff employed by Oceania and that was expected to grow to 400 as work ramped up on stage three of the development to build a bigger laboratory, an additional ultra-high temperature milk-processing line and an additional canning and blending plant.

Oceania Dairy received an award for investment between China and New Zealand at the recent HSBC New Zealand China Trade Association China Business Awards.

There is no doubt that Yili is well-established and massive in the global dairy scene. It is China's largest dairy producer, state-owned and listed on the Shanghai stock exchange. In the 2018 financial year, Yili reached about 80billion yuan ($NZ17.5billion) gross revenue - an increase of 16.89% from the previous year. Net profit was 6.452billion yuan.

But Thursday, July 4 was indeed a sad day for both the co-operative and the West Coast farming community, despite the injection of about $280million that economists have estimated the sale would create into the West Coast economy.

The Westland Co-operative Dairy Company, formed in 1937, has a proud history. After the deregulation of the New Zealand dairy industry in 2001, nearly all dairy co-operatives amalgamated to create Fonterra, but Westland shareholders voted to remain independent.

In 2012, the Hokitika-based company celebrated 75 years of being an indomitable ''David'' in the ''Goliath'' that was New Zealand's dairy industry. David is now going, and from August 1, provided remaining requirements are met, Westland will no longer belong to New Zealand, let alone its West Coast farmers. That much-needed new capital has come at the cost of a proud dairy history.

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