Milk price certainty
Westland Milk has reaffirmed its commitment to pay farmer suppliers 10c above Fonterra farm gate milk price for the following two seasons.
The cooperative revised its predicted payout for the 2015-16 season to $3.90 - $4/kgMS, down from last month's prediction of $4- $4.10/kgMS.
Westland chief executive Rod Quin says the major driver of the revised payout remains the global oversupply of milk, compounded by the ongoing high availability and aggressive approach by the European dairy market.
Quin and Westland chair Matt O'Regan have recently returned from Europe where they met with customers, farmers, processors, traders and industry advocates.
"The clear and consistent message we received is that European milk growth will be higher and more aggressively promoted by European farmers and processors than expected, both within Europe and, more concerning to New Zealand, the international markets," says Quin.
"The effect of this is likely to be a longer time frame for the downturn in prices; expected for another two seasons. This will lead to relatively lower pay-outs and a resulting impact on New Zealand dairy farmers."
However, Quin says, there are indications the global over supply of milk will correct itself, but not quickly.
"We were expecting European processors and farmers to be already feeling some economic pain that might cause them to reduce production, but this is not the situation for most," he says.
"This is due to the relatively low debt levels incurred by European farmers, and environmental considerations with respect to nutrient levels not an effective constraint on most farmers compared with New Zealand.
"On the demand side, the view was consistent that even if Russian sanctions were lifted, there would be little increase in demand as consumers there have shifted to cheaper cheese alternatives while incomes, therefore spending power, for many Russians have been negatively impacted by the lower oil prices."
Quin says the situation in Europe and ongoing growth in the United States left Westland with no choice but to reduce payout predictions further and warn farmers that there will be some tough seasons ahead.
"A return to low cost pasture based farming is required for New Zealand dairy farmers to weather the global supply changes," he says.
"While the immediate outlook is tough there is a positive future in dairying as consumers around the world continue to purchase quality dairy products that are safe and nutritious.
"During our meetings in Europe we noted several examples of where high quality, added value marketers were still doing well and this reinforces Westland's strategy to continue to move away from bulk commodities into added value, high end products."
