Dairy farmers have beef with Bonlac's sour half

Dairy farmers want a detailed explanation of the disappointing profits delivered by Fonterra's Australian arm, Bonlac Foods.

Waikato Federated Farmers president and dairy farmer Peter Buckley said yesterday he wanted details, as did the Otago chairman of Dairy Farmers of New Zealand, Alan Scurr.

Buckley was concerned the costs of sales were up so much and did not want them to get out of hand. He said although farmers to whom he had spoken were reasonably happy with what Fonterra was doing in Australia, the co-op appeared to be trying to buy market share.

"The problem that we would have is that they're doing it on a year when we've got a $4.07/kg payout ... if it was $5/kg or $6/kg we mightn't be so concerned about it."

Scurr was concerned that Fonterra was trying to get "too big too quickly" without "looking after their home patch".

He said it had been suggested overseas investments would lift payout but farmers would like to see more clearly the advantage from them.

Bonlac's results for the six months to December 31 showed a jump of almost 40 per cent in revenue to A$445.6 million ($529 million). But gross profits were up by just over 3 per cent or A$1.28 million, amid strong competition between dairy operators for farmers' milk.

The A$127 million lift in revenue from continuing operations was offset by a A$146 million increase in the cost of sales. And the bulk of a pre-tax profit of A$15.3 million, after other items were taken into account, was likely to be mostly wiped out by higher milk prices paid to suppliers in the second half of the financial year.

Senior Bonlac and Fonterra officials were again unavailable to comment on the results yesterday, but it is believed Bruce Donnison, Fonterra's general manager of operations in Australia, is heading to New Zealand.

Fonterra took full control of the Victorian dairy farmers' co-operative last August for $91 million.

However, national Federated Farmers president and dairy farmer Charlie Pedersen believed the purchase was the right move despite the present profit woes because "we can't afford not to be there".

He said Bonlac had been in difficulties and one of the advantages of Fonterra's ownership meant Bonlac had stopped being "a weak seller in the international market" that had depressed prices.

Bonlac reported a net profit of A$24 million in 2004-2005 after an A$83 million loss the previous year, which included one-off restructuring costs of A$41 million.

Its website says it collects and processes milk from about 1400 Victorian and Tasmanian dairy farmers, or 13 per cent of all dairy farmers.

The website also says Fonterra has revenues of A$1.9 billion across the Tasman and processes 21 per cent of Australia's milk. "Fonterra considers Australia to be part of its home market."

Fonterra said on Tuesday that its overall Australian business was profitable.