Dairy rival plays down Fonterra pricing gap concerns

THAT'S BUSINESS: Open Country chairman Laurie Margrain says the cheese-milk powder gap is the ''sheer reality of business''.
THAT'S BUSINESS: Open Country chairman Laurie Margrain says the cheese-milk powder gap is the ''sheer reality of business''.

The chairman of the country's second biggest dairy processor has played down Fonterra's concerns at the large gap between international milk powder and cheese prices.

This gap, described by Fonterra chairman John Wilson as an "extraordinary situation", was just the "sheer reality of business", Open Country Dairy chairman Laurie Margrain said.

There was nothing unusual about the gap between the two income streams, Margrain said.

"Certain products are worth certain figures, and you don't get the same revenue opportunities on every product you make.

"The gap might be a little wider than normal, but it's just the normal vagaries of business and we deal with it every year. It's nothing unusual and there's nothing untoward about that."

Fonterra's large asset bases, which included cheese and casein plants, meant the co-operative could not maximise its profits in the current environment.

Last week it cited the gap between these two revenue streams as a major reason for holding its milk price at $8.30 a kilogram of milksolids.

Margrain said his firm's suppliers had an excellent season, with the loss of only about 1000 litres.

"Our operations people have done quite a remarkable job and we have processed all of our milk without fail, with the exception of about 1000 litres."

Margrain said the board would decide next year on whether the company would make any capital investments to cope with a burgeoning Waikato milk supply.

"It will keep its options open until some time around mid-next year."

In November, Margrain said those options included building a new UHT plant at Horotiu, expanding its Waharoa plant, near Matamata, or stretching its Whanganui processing capacity

Margrain said the Moerewa site was also in the mix of options. However, North Waikato and South Auckland were focus points for meeting supplier demand for more capacity. Open Country has a resource consent for a processing plant at Horotiu.

New Zealand Specialist Cheesemakers Association vice-president Miel Meyer said it was not the first time milk prices had spiked.

His family run Meyer Gouda Cheese in Hamilton and are also Fonterra shareholders. The business includes a farm that supplies Fonterra and their cheese factory, which is run independently from the farm.

They sell their cheese in New Zealand and, in the past, have exported to Australia.

He had expected the milk price to rise with last week's payout announcement and said he would have tried to absorb the costs within his business after he recently increased his cheese prices.

"Generally we follow if the milk price goes up then our cheese price has to go up."

They tried to balance their retail cheese prices between absorbing the costs of milk purchased for cheese- making while not pricing their product out of the reach of consumers, he said.

He backed Fonterra's move to keep the milk price below that which was calculated in the milk-price manual.

"For the long-term prospects of Fonterra as a company, we think it's a good thing."

He was not surprised that Fonterra recently invested $72 million in its mozzarella plant in its Clandeboye factory because of the demand for this type of cheese in Asia on the back of the growing popularity of pizza.

Meyer said that, if this demand increased, it could close the gap in prices between milk and cheese prices if this demand increased, he said.

"The Asia market has only just started to discover cheese, and five years from now it might be Gouda."

Waikato Times