Sales boom, but dairy chief urges vigilance

By PHILIPPA STEVENSON agricultural editor

Despite Dairy Board sales revenue of almost $8 billion, the industry should not let indecision over the proposed mega co-op hamper further progress, says chief executive Warren Larsen.

"We can't afford to take an inch backwards, let alone have a cup of tea," he warned at the release of the board's annual report in Wellington yesterday.

However, Mr Larsen, who along with other Dairy Board executives is said to have been sidelined by the two big manufacturing companies in talks on the industry's new structure, added a conciliatory note to the caution.

He meant only to "send a clear signal that, in this game, you either keep going or you die. That's a warning to everyone."

Board chairman Graham Fraser added: "What we have to face is that our customers don't care about these things.

"They march on, so we can't afford not to do the same."

And Mr Larsen denied that the companies, New Zealand Dairy Group and Kiwi Dairies, along with the board, were "beating one another up."

The industry had built its success on cooperative principles but was now wrestling with how to apply them to strategies like using milk from other countries and investing in overseas ventures.

"There is no simple solution to this and it requires a lot of thought and endeavour to preserve the things that have meant success in the past and implement the things that are important for the future as the level of investment continues to accelerate."

Mr Larsen said he had been more confident recently that the industry would find a solution to an issue which was growing ever more urgent as the overseas investment strategy got under way.

He denied that the industry was losing out because of the delay. It was a question of how much more it could be achieving by "taking on the world."

"The way to beat the opposition and climb past them is to have all the energy devoted that way. And when we get to that point we will improve on what we are already achieving.

"That's what everybody, everybody, should be aiming at."

The board's revenue of $7.6 billion for the year to May was $230 million up on 1999 due to a 6 per cent, or 75,000-tonne, increase in sales and a beneficial exchange rate.

Earnings before interest and tax were $620 million, up from $440 million last year, and return on total gross assets was 19.5 per cent, up 2.1 per cent.

Mr Larsen said the board was meeting two of three industry-agreed targets - an annual 4 per cent productivity gain and 15 per cent return on assets - and was closing on the third, a yearly 15 per cent revenue growth.

The board's consumer goods business unit, New Zealand Milk, reported revenue of $2.9 billion, a rise of $161 million on last year because of increased sales in South-east Asia and North and South America.

The ingredients business, NZMP, had sales of $4.6 billion, up $79 million, also on the back of growth in Asia.

The board bought 928 million kilograms of milksolids, 15 per cent more than in 1999, for which it paid manufacturing companies $4.5 billion.

Mr Larsen said the board hoped to achieve joint ventures with European companies along the lines of the cheese technology company DairiConcepts, established with the giant Dairy Farmers of America.

A Venezuelan joint venture, Inlaca, was showing very healthy profits, but a supposedly lucrative deal with the Domino pizza chain had all but collapsed.

The board was nearing the end of due diligence with Australian firm Bonlac, he said, but many issues remained to be completed.

Mr Fraser said New Zealand's share of international dairy trade had grown from 19 per cent to 31 per cent in the last 10 years and now rivalled the European Union, which had 37 per cent.