Tatua payout highlights benefits of adding value

A third of Tatua's business involves value-added products which brought higher returns. Picture / Greg Bowker

A higher dairy-farmer payout from tiny Waikato dairy exporter Tatua has thrown the spotlight on improving returns from value-added milk products.

Tatua - supplied by just 122 farms - has announced it has resumed outdoing Fonterra on payout with $4.35/kg of milk solids for last season, compared with Fonterra's $4.10/kg.

Based on Fonterra's average supplier production of 105,000/kg of milk solids last season, the 25c/kg differential would be worth more than $26,000 in gross income to the average farmer.

Chief executive Mike Matthews said yesterday the payout from Tatua had been poorer at $4.32/kg against Fonterra's $4.59/kg in the 2004-05 season, the first time it had underperformed Fonterra on payout for several years. This partly reflected a transitional period for Tatua when it had no product to sell for three months after it stopped supplying Fonterra.

But Matthews said this change was only part of the reason for his company's better payout for last season. The other was higher returns from value-added milk products. A new plant meant last season was the first time Tatua had sold all its own cream.

A focus on value-added was how Tatua had managed a payout premium historically. Matthews estimated about a third of Tatua's business was value-added.

Fonterra's results this week showed revenue from the value-added consumer brands part of the business was about 28 per cent of total revenue. But that does not count value-added activity in the ingredients part of Fonterra's business.

Waikato Federated Farmers president Peter Buckley said he understood Tatua had made a strategic decision to increase its value-added activity to get better returns. He wanted Fonterra to increase its focus in this area to help generate better payout.

In June, Fonterra chief Andrew Ferrier said he hoped for profit growth of more than $120 million this season from value-added activities.

Tatua said its total revenue for last season was $129 million, up $12 million. Milk supply was a record 12.24 million kg of milk solids.