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Independent dairy companies offer farmers an attractive option



Ask the New Zealander for the name of the dairy company, and the one they will definitely come up with is Fonterra.

But otherwise many would be surprised by the answer. In fact, there are at least several dozen independent processors processing 18 percent of New Zealand milk, and this share has been steadily increasing over the 18 years of Fonterry.

Chris Lewis, a farmer supplier at Open Country Dairy (OCD), speaks for many when he says that farmers are choosing the independent Fonterra because it's an easier way to get promoted.

"Independents are especially useful for farmers who want to buy their first farm. An average farmer would now pay $ 600,000 for shares belonging to Fonterry.

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"When you buy your first farm, it's a lot of money. It's like buying your first home – you put everything on the line to make it happen, so farmers look at other options. They can say to themselves, "I can buy this piece of land, although I can get a slightly lower price for milk," says Lewis.

He says that if Fonterra did well, there would be no room for independent people. He himself moved from the dairy giant some time ago.

Chris Lewis, who supplies Open Country Dairy, says farmers for the first time appreciate the fact that they don't have to buy expensive shares to join the independent.

PROVIDED

Chris Lewis, who supplies Open Country Dairy, says farmers for the first time appreciate the fact that they don't have to buy expensive shares to join the independent.

"The tanker comes every day, tests the milk, and you earn on the 15th of the month [OCD] helped us invest money in our business and take control over it. We always move the ruler over it to see if it would be better for us to return to Fonterry. Some years will be better for us, others not, but in the long run we were very happy. "

The independent are a diverse group, some focus on goods such as powdered milk or value-added products, such as infant formula, and maybe even branded goods. Some wander in all three.

They can focus on the domestic market, but large players are oriented towards the lucrative export market – in fact, 96% of New Zealand dairies are shipped abroad, making this country the largest exporter in the world.

Brendhan Greaney, CEO of Tatua, attributes the cooperative's success by focusing on added value.

MARK TAYLOR / STUFF

Brendhan Greaney, CEO of Tatua, attributes the cooperative's success by focusing on added value.

But where the independent have had the greatest impact on the dairy scene over the past two decades, they have competed with Fontera for farmers' milk.

The most important of them are Open Country Dairy, Synlait, Westland, Miraka, Oceania and Tatua. In total, their annual revenues are over $ 3 billion, compared to Fonterry's $ 18 billion.

Others – niche companies such as Fresha Valley, Kiwi Organic, Kawerau Dairy, Lewis Road, Barry & # 39; s Bay, Spring Sheep Dairy, Kingsmeade, Blue River Dairy – are either supplied by Fonterra farmers, or have their own flocks of sheep or flocks goats.

Goodman Fielder, once a Kiwi company, is separate, but now belongs to Singapore, which has been given the privilege of obtaining Fonterra milk at a cost, plus a processing fee, because its products are largely manufactured using Fonterra plants.

As the main domestic competitor of Fonterry with brands such as Meadow Fresh, Puhoi, Bouton d & # 39; Or, Chesdale and Ornelle, its task was to maintain the integrity of the dairy giant.

The analyst Geoff Taylor from TDB Advisory, who closely observes the industry, says that one of the characteristics of the most successful companies is strict adherence to one mode of operation.

Miraka Dairy's boss Richard Wyeth and president of Kinga Smiler. Miraka is the first dairy company belonging to the Maori.

CHRIS HILLOCK / STUFF

Miraka Dairy's boss Richard Wyeth and president of Kinga Smiler. Miraka is the first dairy company belonging to the Maori.

"Successes are not determined by a specific mix of products, but by sticking to their knitting. The two most successful are Tatua and Open Country Dairy.

"The tattoo has survived with high-quality specialized ingredients and has not tried to increase the supply of milk, and they are very small. It is interesting that OCD is a good performer, ahead of Synlait in terms of capital employed. Bookends at the other end of the spectrum because it is a commodity-based supplier.

"It's in the middle who tried to be everything to those who did worse. He also says something about size, not only small businesses perform better, OCD is a very large business, about 10 times larger than Tatua, "Taylor says.

Changes are coming in the shape of the amended act on the restructuring of the dairy industry, the act that introduced Fontera, and will affect the independent.

TDB's advisory director, Geoff Taylor, says the best-performing companies are those who stick to one course of action.

PROVIDED

TDB's advisory director, Geoff Taylor, says the best-performing companies are those who stick to one course of action.

When the dairy giant had 96% milk supply in 2001, the Labor government reserved it to ensure that Fonterra would not exploit its almost monopolistic position.

Because:

* He forced her to supply milk to new companies for three years on a decreasing scale;

* He forced Fontera to accept farmers who left the cooperative for a competitor.

Lewis says that Federated Farmers (is their chairman of the dairy group) believes the restrictions have gone. Strong Fonterra is in the industry's interest because it sets a benchmark against which they must judge themselves.

Fonterra commentator and supplier Craig Hickman believes there is no need for more independent entities.

"We have enough stainless steel in New Zealand. We have a static, if not decreasing milk supply, and if more processors come, they have to introduce their own business model. They must stand on their own feet. Now they can come and have milk guaranteed when they start – if it's not a subsidy, I don't know what it is. "

If the independent had to accept "every drop of milk that people wanted to provide them", their payments to farmers would fall. In addition, Hickman emphasizes that they collect milk from a small area, which reduces transport costs, while Fonterra tankers sometimes have to travel for milk.

Former CEO John Penno was the driving force behind Synlait's success.

WARWICK SMITH / STUFF

Former CEO John Penno was the driving force behind Synlait's success.

Open Country dairy

Of the approximately 1,000 farmers' suppliers, OCD is by far the largest of the independent, though small compared to the Fonterry of 10,000.

It is the company most comparable to Fonterry and has achieved exceptionally good results, focusing mainly on exporting milk powder and cheese.

Belonging 76% to Talley & # 39; s Group based in Motueka, which created an empire of many food products, including meat, seafood and frozen vegetables, was founded in 2001. Has processing plants in Waikato and exports to 64 countries.

Return on capital over the past five years has been 11 percent, second only to Tatui.

Mirak

Based north of Taupo, Miraka has two key differences from other companies: it is owned by a group of Maori trusts and subsidiaries (with some foreign investments) and uses renewable sources of geothermal energy to process their products.

CEO Richard Wyeth, who has been working at Miraka since its premiere in 2011, says his strategy was to build a strong foundation for commodity products – mainly whole milk powder – creating strong relationships with customers abroad, and then producing specialized powders for which will receive a higher price.

In 2014, she began processing UHT milk by signing a sales contract with the Chinese company Shanghai Pengxin, which meant that he could work at full capacity. The third level of strategy is the creation of consumer brands, which has done with Taupo Pure.

Prime Minister Jacinda Ardern visited Westland Milk Products last year and offered a loan for a new milk factory. Was never taken; instead, Yili is the new owner.

JOANNE CARROLL / STUFF

Prime Minister Jacinda Ardern visited Westland Milk Products last year and offered a loan for a new milk factory. Was never taken; instead, Yili is the new owner.

"We're relatively small, so we can do things that larger companies can't. We sell in about 23 countries, with a reasonable proportion of China, but also in regions such as South America, the Middle East and Africa. it can't do without China, but it is commercially wise to have a diverse customer portfolio, "says Wyeth.

Of the 104 suppliers, 20 percent are Maoris. On average, it is 10-15 c above Fonterry milk prices. Dividends are returned to Maori shareholders who have invested capital in the construction of the factory.

"We haven't accepted many suppliers in the last few years, we have a waiting list that is quite long, but we have processing potential," says Wyeth.

DAVID WALKER / Stuff

In Canterbury Cheesemongers there is no room for lactose intolerance, the temperature-controlled cheese hall is full of dairy delicacies and exceptional cheeses.

tattoo

The Tatua cooperative in Morrinsville was not immediately successful. Created 105 years ago, it was originally a cheese factory but later developed into higher value products such as caseinate and high value ingredients.

Brendhan Greaney, CEO, says that the reason she did so well for her 113 farmers is because he switched from relying on raw material revenues for valuable nutrients and nutrients.

"The percentage of our operations that adds value is now 60 percent. We create products tailored to the needs of customers and although we have products on supermarket shelves, a small part of our activities, we are actually a supplier of ingredients for other manufacturers. "

Last year, its revenues reached a record USD 364 million; in 2017 its return per kilogram of milksolids USD 22.16, far ahead of any other company.

Tattoo is not very much about one single market. Australia and NZ account for 24% of exports, Japan (20%), China (16%), the United States and Europe (20%), and small quantities are shipped to the Middle East, South America and Southeast Asia.

Considered an individualist, Tatua decided not to join the fusion that created Fontera. From year to year, farmers were awarded consistently high prices.

The heritage created by the founder of W Millennium is still ongoing, and his descendants still supply milk to the cooperative.

Synlait Milk

A 39% Chinese company was founded in 2007, and has gone into expansion mode in recent years, moving to Waikato from its Canterbury base. This year, for the first time, it recorded revenues of over USD 1 billion.

He took 56 farmers in Waikato to add to the 200 he has in Canterbury. Historically, this paid farmers equally with Fontera, but supplemented them with bonuses for those who provide A2 milk or participate in the "proudly" program.

Since listing on the stock exchange in 2013, Synlait has increased the volume of powders based on infant formula, canned infant formulas and creams.

Yili

The largest Chinese milk producer owns Oceania Dairy near Waimate and Westland Milk.

Oceania milk powder is exported to the parent company in China, where it is made from a baby formula. Owned by the Chinese government, its finances are quite opaque, although it aims to pay farmers for the same price of milk as Fonterra.

Earlier this year, Yili bought Westland Milk, based in Hokitika, whose 430 long-term suffering farmers have overwhelmingly decided that they are fed up with successive payments. The plant produces products such as powder and butter, up to powdered yogurt and UHT milk.


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