Tatua, the small Waikato-based dairy co-operative, did well over the 2014/15 dairy season while its far bigger competitor, Fonterra, did not. The reason - powder.
Tatua yesterday reported a 27 per cent increase in earnings before tax of $136.4 million for the year to July. That equates to earnings of $10.32 per kg of milksolids, before retentions and tax - a record for Tatua and most likely a record for the industry too.
In contrast, New Zealand's biggest co-operative, Fonterra, last week said its earnings before interest and tax came to $503 million for the year to July, down 50 per cent on the previous year's, as high milk prices cut deeply into margins. Comparing Tatua with Fonterra is not an "apples with apples" exercise.
Fonterra is the backbone of the dairy industry and the only player capable of processing the vast quantities of milk, representing 1.58 billion kg of milksolids, for its 10,600 farmer-shareholders.
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Tatua, nestled in prime Waikato dairy country, is made up of just 87 farming families, processing 13.2 million kg of milksolids a year, and employing 300 people.
For Fonterra, wholemilk powder is an important part of its business while Tatua is absent from this end of the market. The fortunes of Fonterra and the second biggest co-operative, Westland, are strongly tied to milk powder prices, which have slumped since February.
Tatua's chief executive Paul McGilvary said milk prices were high in the first half of the financial year, then reached a plateau before falling away sharply in the second half.
Most of the specialised products that Tatua trades in are priced in six-month contracts, so they don't come down as fast as they do in the commoditised markets like wholemilk powder. The bulk ingredients products that Tatua is involved in - caseinates, anhydrous milk fat, and whey protein concentrate - fared relatively well. Tatua's five value-added businesses benefited from the sharply lower milk prices in the second half, which reduced input costs.
"The key difference with Tatua is that we don't make milk powder at all, and we don't make butter or cheese," he said. "A relatively high proportion of the business - higher than most other companies in New Zealand - is in value added," McGilvary said.
Tatua, which is based at Tatuanui, near Morrinsville, is building a new $65.5 million specialised powders dryer, which is due for commissioning in April next year.