Tatua payout slides but still beats Fonterra's by a neck

By Chris Hutching

Friday 16th July 2004

Morrinsville dairy company Tatua will once again beat its monopolistic nemesis Fonterra when it announces its final payout to suppliers in a fortnight.

But the gap has narrowed from the huge premium of nearly $2/kg of milk solids more than Fonterra last year to slightly more than 7c/kg this year.

Tatua Co-operative Dairy Company chairman Steve Allen said the payout for the 2003/04 year would be "north of $4.30/kg."

This is more than Fonterra's final payout of $4.23/kg but well short of Tatua's figure last year of $5.60.

The second small processor competing against Fonterra, Westland Co-operative Dairy Company, is due to announce a payout of about $4 after being adversely affected by currency movements.

Tatua's Allen has been downplaying expectations among his company's dairy farm suppliers because some of the initial advantages Tatua and Westland enjoyed have disappeared and the three dairy companies are likely to achieve closer results in future despite their marketing propaganda.

Fonterra is forecasting around $3.85/kg of milk solids for the 2004/05 year but Allen said it was too early for a forecast from Tatua for next season.

He said many anomalies and one-off benefits arose during the period of deregulation three years ago, such as a high amount of forward currency protection and a payout for Tatua's Dairy Board shares.

These one-off anomalies were now history and Tatua was a tiny company on the dairy scene that could easily be affected by changes initiated by customers, "so we shouldn't get too excited by a good year."

Regardless of Allen's low-key approach, the pressure will be on Tatua because geographically it is surrounded by "enemy territory" and if it fell behind then suppliers might switch to Fonterra.

"It has to be a true performance and a sustainably compet-
itive result based on added value as opposed to commodities. Fonterra is doing a great job but we're in a boutique niche."

Meanwhile, Westland Milk products on the West Coast of the South Island is expected to announce a final payout of $4/kg milk solids, chief executive Barry Richardson said.

"We've had an excellent year in terms of our operations and business but currency movements are a major determinant of returns," Richardson said.

"Fonterra is of a size where they can take forward cover for 15 months out, whereas we have a more neutral hedging policy."

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