Soprole raises concerns

Fonterra's Chilean subsidiary, Soprole, is worried that falling milk prices from the world economic downturn may stall the nation's ability to increase milk exports.

The milk processing company's profits are expected to be halved in the year ending July compared to the year before and its new US$50 million (NZ$81m) milk powder drier has yet to process large volumes.

Chairman Eduardo Teisaire said difficult conditions were expected to continue and with luck the company might repeat its performance for the 2009-10 season.

The company was working hard to reduce the negative effect of falling prices, he said.

"The future looks gloomy this year and it is very complicated. It might impact the dairy sector." Teisaire said Soprole had to base its milk prices paid to suppliers on international market rates and the problem would be in spring when surplus milk production arrived.

The company was analysing current prices and trying to understand the situation in order to establish better profits, he said.

Soprole is the largest milk processor in Chile with 25 per cent of the nation's production and is 99 per cent-owned by Fonterra which spent US$200m last year to increase its majority stake.

The company wants to step up its exports with the rest of the Chilean industry, and was looking at growth when world commodity prices were US$3500 a tonne, but they have fallen to US$1800/t lately. Milk levels are down 12 per cent on the same period in the 2008-07 season.

Chile produces 2 billion litres a year mainly for the domestic market. The nation began exporting milk two years ago and before becoming self sufficient in milk five years ago was an importer.

Soprole has set up model farms in the south showing the benefit of Kiwi-style low cost pasture based systems so Chile can raise milk production. The take-up of this system, however, has been slow to come from its Chilean suppliers.

Teisaire said the company was disappointed by the adoption rate. Relatively few farmers changing from year-round expensive feeding systems to pasture-based farming which would help them cut costs when milk prices were down.

"We are disappointed with the lack of speed because our experimental farms have been enhancing the knowledge and culture of local farmers.

"They go and visit the farms and do not put into action what they have learned and it is not producing the practical impact despite our good results.

"The entire future of Chile as a daily exporter depends on the farming sector becoming globally competitive and it can do that by moving into the seasonal system which could be a big step forward."

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