Fonterra’s increased milk price is good news after earthquake, says DairyNZ

By Jim Cornall

- Last updated on GMT

While some farms in the Kaikoura region were unaffected by the earthquake, others remain cut off and need to dispose of milk. Pic: ©iStock/KiraVolkov
While some farms in the Kaikoura region were unaffected by the earthquake, others remain cut off and need to dispose of milk. Pic: ©iStock/KiraVolkov

Related tags Milk price Milk Fonterra

DairyNZ chief executive Tim Mackle said Fonterra Co-operative Group’s increase of its 2016/17 Farmgate Milk Price is great news for farmers.

He added that it is good for the country that the dairy industry could provide a boost when the recent earthquake might impact tourism in the short-term.

Fonterra increased its forecast price by 75 cents to NZ$6.00 (US$4.25) per kgMS.

The 7.8 magnitude earthquake struck Monday, November 14, southwest of Kaikoura. Fonterra has a site about 65km (41 miles) from the epicentre of the quake.

The cooperative said it is collecting milk from all operating farms in the earthquake damaged Culverden, Waiau and Amuri areas, as it continues to run a support response from its Farm Source store in Culverden.

Disposal of milk

Farm Source chief operating officer Miles Hurrell said all farms in North Canterbury had milk collected as usual, however, 22 farms in the Kaikoura area remain cut off from road access and still need to dispose of milk.

Hurrell added that farmers had offered generators, transport for animals and other resources to help the community pull through.

“We’ve seen farmers working through the night to care for animals and help out their neighbors, so it was fantastic to be able to back up those efforts by having the majority of North Canterbury milk collection on track within 48 hours of the earthquake,”​ Hurrell said.

He added that the farmers and Fonterra are well insured so that there would not be a situation where there will be financial stress from missed collections.

He said Fonterra’s Farm Source and Emergency Response teams have been on the ground in Kaikoura to help with farm work and relief milking.

Fonterra reported no major damage to any of its New Zealand sites, with national manufacturing operations running as usual since the earthquake.

Improved forecast

Fonterra chairman John Wilson said that operations were normal, but there has been falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions.

“On balance, demand continues to be firm,”​ Wilson said.

“As a result there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast.”

DairyNZ said the milk price increase is positive for all New Zealand dairy farmers, but particularly for North Island farmers who have endured a wet spring, resulting in reduced milk production, and those from North Canterbury and Kaikoura suffering the aftermath of the quake.

“The $6 milk price brings farmers to above break-even levels,”​ Mackle said.

“However, many farmers have increased debt and deferred maintenance expenditure over the last season or two.”

First quarter update

Fonterra also announced its first quarter update, with revenue of NZ$3.8bn (US$2.7bn), up 6% on the same period the previous year.

Sales volumes are up 2% to 4.9bn liters liquid milk equivalent (LME), while the gross margin of 22% remains largely unchanged.

Chief executive Theo Spierings said the first quarter revenue gains reflected broad-based volume and margin growth across the business, and an ongoing focus on cost controls.

The co-operative has moved an additional 128m liters LME into higher-value consumer and foodservice products compared with the same period last year.

Challenges ahead

Spierings said while the first quarter performance was pleasing, the co-operative’s earnings face emerging head-winds for the remainder of the financial year.

He said Fonterra’s current milk collection forecast is 1,460m kilograms of milk solids (kgMS), down 7% on last season, which is constraining sales.

Related topics Markets Oceania Supply chain Dairy

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