Westland Milk Products has lowered its farmer forecast price for the season because of sluggish sales.
The forecast has fallen from a range of $6-$6.20 per kilogram of milksolids to $5.80-$6.00 for the 2018-19 season.
The drop is sure to strengthen support among Westland’s 342 shareholders for the recently announced $588 million takeover proposal by Chinese company Yili, which goes to a vote in July.
Besides receiving an immediate payout of $3.41 per share (worth $1.50 at present), farmers have also been offered the carrot of Yili matching Fonterra’s level of payment for the first 10 seasons.
Fonterra’s forecast milk price for this season has risen to a range of $6.30-$6.60, although earnings per share are down to 15-25c.
Westland chairman Pete Morrison said factors driving the revision included the fact that the last quarter’s sales targets for infant and toddler nutrition would not be met.
«While we have seen increased production of ITN by 29 per cent, the budget was reliant on the business achieving 52 per cent sales growth, and now the forecast sales growth is 34 per cent.
«This situation reinforces Westland’s need to have better and more direct sales channels and to reduce our reliance on third party distributors,» Morrison said.
Yili would provide a «strong route to market» and was one of the reasons why the board had backed the proposed sale.
Harihari farmer Jon Sullivan, who opposes the deal, said farmers had few options because Westland struggled to make a profit. Last year it managed to post a $3.3m profit before tax.
«It’s just another example of management failing us. But if we don’t accept the sale, we could end up with nothing.»
Recently Fonterra chairman John Monaghan said the dairy giant had offered Westland a «co-operative solution». It is unclear whether its solution went beyond collecting milk from the region’s farmers, and included the Hokitika plant.
Monaghan said while Yili had committed to match Fonterra’s farmgate price for 10 years, the period would go by quickly.
«What happens beyond that becomes important when you consider our remit is to bring profits back to New Zealand. Nearly 50c in every dollar is spent in the regions and has benefits for the New Zealand economy.»
Sullivan said Yili’s owners would be «sharpening their pencils» when it came to managing the Hokitika plant, which employs 430 Coasters.
Westport farmer John O’Connor said he was «for a co-operative solution». There would be short term gain from the Yili sale but it might not be the best in the long term.
«I think we farmers have been let down by management and directors and what might seem as a director’s obligation to get the best financial deal doesn’t offer the best inter-generational co-operative benefits.»