Milk processors reap fatter margins in September quarter

Monday 19th November 2018

Cheaper raw milk prices and better prices for processed dairy products at home and abroad supported fatter margins for dairy product manufacturers in the second quarter.

Prices received by dairy product manufacturing firms rose 6.5 percent in the three months ended Sept. 30 while input prices dropped 3.7 percent in the same period, Statistics New Zealand figures show.

The upstream dairy producers have enjoyed the favourable price conditions over the past year as well, with output prices up 7.8 percent from a year earlier and input prices down 4.7 percent in the same period.

That didn't flow down to dairy farmers, who faced a 1.5 percent increase in input prices in the quarter, while their output prices dropped 4.8 percent. On an annual basis, output prices were 6.5 percent lower than a year earlier and input prices were 6.1 percent higher. StatsNZ said there's typically a lag between a change in costs and what a firm can charge customers.

Across the broader producer prices index, output prices rose 1.5 percent in the quarter while input prices increased 1.4 percent. Output prices for professional, scientific and tech services - which account for 7.5 percent - rose 1.6 percent in the quarter, while property operators and real estate services - which account for 6.1 percent - increased 0.3 percent.

Dairy product manufacturing has the biggest weighting on input prices at 6.5 percent. Building construction input prices are the second-biggest contributor at 6.2 percent, and rose 1.3 percent in the quarter.

Mining output prices climbed 7.5 percent in the quarter, while input prices rose 2.2 percent. Output prices for petroleum and coal product manufacturers rose 7.2 percent in the September quarter and input prices were up 2.8 percent.

On an annual basis, PPI output prices rose 3.6 percent, lagging behind a 4 percent increase in input prices. Higher fuel prices contributed to the margin squeeze, as petrol prices for businesses climbed 22.5 percent and diesel costs were up 37.8 percent.

That's been keenly felt in the transport sector. Input prices for rail, water, air and other transport firms rose 10.8 percent in the September quarter from a year earlier, while outprice prices were up just 1.4 percent.

(BusinessDesk)

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