Friday, July 1, 2022

Diversification vital for Westland

Westland Milk Products’ payout is being shaded by competitors with more value-add products, which is why the co-op says its move into the nutritionals market “is critical to ongoing success”.

Chief executive Rod Quin delivered this assessment at the company’s 75th annual general meeting last week, reviewing a year in which growing conditions were excellent but markets were difficult.

Many Westland suppliers will remember it for a $6.14/kgMS payout – a drop of 21% on the previous season.

There were great pasture-growing conditions but the strengthening NZ dollar and lower international prices offset this, not helped by the continued economic struggle in the United States and within the European Union.

Increased competition from high international supply pushed prices down across all products, with skim milk powder falling 23% and pure milk fat prices dropping “a staggering” 54%.

The lower prices combined with a NZ dollar at an average of 78c, up from last season’s 70c, to create a challenging sales programme, Quin said.

“The season in review was very much a buyers’ market and the importance of our customer relationships was highlighted.”

Like many agribusiness leaders, he had to explain that Westland was “not immune from global currency forces”, but then acknowledged Westland could do more to lift its typical shareholder payout.

Westland’s shift away from dependence on Europe and the US for its returns had been a successful strategy, Quin said.

“The overall demand for dairy products remains firm with average global growth expectations of 2% per year. However Westland’s business is heavily weighted towards business in the growth markets of China, South-East Asia, New Zealand, Australia and the Middle East where growth is much higher.”

Overall Quin predicted a promising future for Westland, provided it maintains key customers and continues to grow. “With comparatively little of the global stores of milk product under Government control the supply chain is relatively thin and any disruption caused by weather or food safety issues could result in rapid price increases.”

In the valuable colostrums segment, returns were knocked by over-supply from the US and Chinese regulators reducing end-use options.

Average prices fell from US$40 to US$30 per kilo, prompting Quin to say “the overpayment of colostrum had to be addressed”.

He senses that while this market remains depressed and Chinese regulatory changes have hit demand, this could also turn quickly.

Meantime it was positive to see a continuing rise in pricing and demand for lactoferrin, in nutritional applications from infant formula to cosmetics.

And Quin also took heart from Westland continuing to sell above the Global Dairy Trade reference prices and above prices quoted in New Zealand export statistics, albeit not to the same extent as the year before.

In financial management, input costs had fallen relative to the size of the operation. By processing 14% more milk, fixed costs fell by 9% across the business. Quin said the expansion into Canterbury had been successful, with new shareholders delivering milk to the Rolleston plant for further processing in Hokitika.

And in governance, shareholders have elected Hari Hari farmer Kirsty Robertson to represent the Southern Ward after director Jim Wafelbakker stepped down from the post after 25 years’ service.

Few directors of any company could claim the record of service clocked up by Wafelbakker, Quin said.

“It is one of the hallmarks of Westland Milk Products that the company, because of its co-operative structure and the closeness of West Coast communities, often attracts a loyalty and record of service you’d usually associate with a family-owned business.”

Lot to celebrate

Chairman Matt O’Regan had more to reflect on than most in Westland’s 75th year.

He began his address to shareholders by suggesting it was a major achievement for any business to celebrate so many anniversaries.

“We owe a lot to the vision and commitment of our founders, but I think even they would be surprised to see how far we have come”, he said.

Westland was now one of the top 100 businesses in New Zealand with a turnover of more than $530m, of which around $325m goes straight back into the West Coast economy.

Milk supply grew 14% in the past season, during which the co-op processed more than 100,000MT for the first time. To put its modern capability in context, Westland now produces more butter in a week than it did in its entire first season.

“Our contribution to the West Coast economy is significant, and equates to about $10,000 per head of population, compared with the dairy industry national average of $2500 per head. Our recent successful expansion into Canterbury suggests more growth lies ahead,” O’Regan said.

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