Westland Milk signals higher 2018 payout after saving $70m under new management

Westland Milk Products expects to pay a higher price at the farmgate in the 2018 season following what it says has been "10 months of analysis and systems change" under new management.

The country's second-biggest dairy cooperative has been cutting staff numbers in an effort to trim its wage bill as part of a broader restructuring to run the milk processor more efficiently after a high cost structure was seen as weighing on the 2016 farmgate payout.

It is forecasting a net payout range, after retentions, of between $6.40 and $6.80 per kilogram of milk solids for the current season. Farmer shareholders received an average payout of $3.88/kgMS in the 2016 year, while in February, the milk processor was forecasting a payout of $5.30-to-$5.70/kgMS for 2017.

Pete Morrison, who was first elected to the board in 2015 and has been a shareholder since the cooperative's creation as an independent company in 2011, was named its new chair in March, while Toni Brendish became chief executive in July 2016.

Brendish said a focus on improving organisational efficiency had driven the company's revival, and it has saved close to $70 million in the past 10 months. The company's size and facilities give it the capability to be more flexible, she said, as it can segregate its processing systems to offer customers higher-margin specialty products.

"There are additional costs in becoming a flexible, niche market producer," Brendish said. "But by offering such a service we can command a price premium that will not only outweigh the additional costs but deliver our shareholders a higher, more sustainable return in what will always be a highly volatile market.

"Westland, quite simply, cannot afford to remain almost wholly reliant on bulk commodities."

The news comes after dairy product prices fell at the latest Global Dairy Trade auction overnight, declining for the third time in four auctions amid concern about extra supply. The GDT price index slid 1.6 percent from the previous auction two weeks ago to US$3,343. Some 32,768 tonnes of product was sold, up from 26,688 tonnes at the previous auction.

(BusinessDesk)