New Zealand's two dairy giants are getting closer to working out how they will finance the extra milk-processing capacity needed in the South Island.
Rapidly increasing milk production has led to a critical shortage of processing capacity. Farmers are waiting to convert land to dairying or to expand their existing businesses.
The
New Zealand Dairy Group, which has its headquarters in Hamilton, has over 100 people who have registered an interest in supplying the company, while Kiwi Dairies, based in Auckland, has 70 applications for new supply.
The issue is to work out an equitable share structure so that those producing the new milk pay the bulk of the costs of the new processing capacity, while existing suppliers do not have their shareholding returns diluted by the cost.
For 18 months, Dairy Group has had a moratorium on new dairy conversions in the South Island until the issue is sorted out.
A spokesman said a company proposal on a peak rights scheme had gone to shareholders.
Under the proposal, existing suppliers would not need to buy new rights unless they exceeded their peak supply delivered in the present or last three seasons.
If they did so, they would pay $30 a litre for milk produced above the peak. New suppliers would have to buy the existing company share standard at $2 a kilogram of milksolids, plus $30 a litre for their peak production. The payment will be a one-off one as long as suppliers stay at or under their peak right.
"It's a way of getting an adequate contribution from those who create the need," the spokesman said. "It's a fairer and more equitable system. Those increasing or bringing new milk into the company will pay more.
"We've based the $30 on the actual cost of building new capacity to process that milk. At the moment all suppliers are paying for that extra capacity."
He said a shareholder vote on the proposal was planned for December.
Kiwi chairman Greg Gent said the company had enough capacity at a cheese plant at Stirling, in Otago, and a milk-powder plant at Mainland, in Christchurch, to process supply from existing shareholders this year. But there was not enough capacity for the 2001-2002 season.
To accommodate this, the Stirling cheese plant capacity will be increased from 1.5 million litres a day to 2.5 million.
And Kiwi is to reopen the Brightwater plant, near Nelson, with a skeleton staff for next month's peak flow.
- NZPA
