This article shows competition is alive and well in the dairy industry with smaller processing companies results now public. Some producers want the best payout but are not prepared to invest in capital to achieve this.
While the OCC suppliers may have missed out on $62,000 of payout compared to Fonterra's result, they have avoided a shareholding commitment of over $800,000 that the major companies suppliers must find.
In my opinion competition is important in the dairy processing and marketing sector, and producers need benchmarking profits of these other small companies to judge how their own is performing.
Look here to see 2010/11 net results of 6 of the main dairy processors in NZ.
Disgruntled Southland farmers supplying Open Country Dairy (OCD) are upset that they are getting an average 34 cents less per kilogram of milksolids (kgMS) in their 2010-2011 milk payout than Fonterra suppliers. "We expected a lot better," said supplier Craig Laing, who, along with two other dairy farmers plans to organise a meeting of OCD suppliers. OCD is paying an average of $7.56 across the country, while Fonterra has paid a record $8.25 per kgMS, but retained 35c, leaving shareholders with $7.90. This is the third consecutive season that farmers supplying OCD have been paid less than Fonterra suppliers reports The Southland Times.
OCD is the second-largest dairy company in New Zealand, with 500 independent dairy farmers supplying its three dairy factories in Waikato, Whanganui and Southland. In Southland and Otago, there are 88 farms supplying OCD's Awarua factory, and for an average-sized dairy farm, with 520 cows producing 181,200kgMS, this means missing out on about $62,000 a year. However, OCD's milk supply manager for Southland, Miles Herdman said that at Awarua, the original suppliers were offered a guaranteed price for three years of not less than 25c under the Fonterra cash price to its shareholder farmers. Now in its final year, this means that under the guaranteed price scheme, some Awarua suppliers will get a payout of $7.65.
Mr Laing, who farms near Gore remains unhappy. "Last year, Open Country's chairman, Laurie Margraine, admitted they had failed to perform, but said they'd get it right." An extension of the guarantee scheme "would have to be a starting point". Mr Herdman said various guarantee schemes had been introduced at different times and factories, but there was "no intention to continue the Awarua scheme".
OCD supplier Dave Yardley agreed with Mr Laing. "They sold Open Country on the basis that they would be more cost efficient than Fonterra, but they have been off the pace all along." Mr Yardley said to supply Fonterra, farmers had to be shareholders in Fonterra, while this was not the case with OCD and the other independent dairy companies."Of the $7.90 Fonterra payout, 30c is a share dividend, so to compare Open Country with Fonterra, you are looking at $7.56 compared with $7.60, but the other independent companies are still much closer to Fonterra. Open Country suppliers are not happy campers."Mr Laing said the other South Island independent dairy companies Synlait and New Zealand Dairies both paid more than OCD. "Including incentives, Synlait paid $8.07 and New Zealand Dairies $7.87."
2 Comments
What do you expect when supplying an investor owned company? After supplying owners of Fonterra have been further dumbed down and disenfranchised as a result of the TAF process manifesting in co-op being transformed into a corporate, suppliers of investor owned companies can expect to get payed less for milk, in fact only enough to survive. Look at the sheep and beef industry over the last 20 to 30 years. Purchasing milk for investor owned company is a cost to be minimised so to maximise return to investor owners, simple. The only thing that may keep milk price paid to farm owners slightly above subsistence is if competition exists between investor owned companies.
I would like to know why Tony Chaston thinks competion is so necessary. If Fonterra shareholders were engaged enough to hold director to account for performance of executive, this should ensure we recieve maximum sustainable price for our milk, while retaining benefits of co-operative to ourselves as supplying owners, and NZ society as a whole.
Tony, those that invested the $800,000 in shares in Fonterra received approx 7.5%cash return. It has been said that of farmers polled on reasons why they are leaving Fonterra, 89% are doing so because of financial issues. I know of some who sold the shares to buy a beach house, only this season to have returned to the Fonterra fold.
True competition is non existent while processors, except Fonterra, can, and do, refuse supply. It's nothing other than a Clayton's form of competition.
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