That is a big concern for Fonterra in efficient asset use because that loss of supply would be equivalent to the throughput of three average-sized milk powder plants.
The second edition of a dairy industry competitiveness study by TDB Advisory, of Wellington, predicts Fonterra’s market share will fall below 78% in both North and South Islands in 2020.
“Under the original Dairy Industry Restructuring Act that market share would have triggered a review and, subject to adequate competition, the expiration of the DIRA,” TDB said.
But those trigger points have been suspended by Agriculture Minister Damien O’Connor.
The TDB analysis assumes industry number two Open Country will be successful in attracting the milk supply it needs for its seventh drier on its fourth site, at Horotiu in north Waikato, due to open in August.
Also, the major underlying assumption is nil milk production growth for New Zealand as a whole over the three years 2018 to 2020.
“Our growth estimates by company are a function of committed capacity currently being invested in, access to capital and, in Westland’s case, a return to competitiveness that retains their current volumes.”
The forecast growth figures generated for 2018-20 are: Fonterra minus 2% annually, Open Country plus 8%, Synlait plus 1%, Westland nil, Tataua plus 3%, Miraka plus 4% and Oceania plus 26%.
Open Country’s actual volume growth is forecast to rise from 1.4b litres to 1.75b annually, that of Synlait to approach 1b and Oceania to reach 400 million.
Elsewhere in the TDB analysis it gathered sharebrokers’ forecasts of the earnings performance in 2019-20 of four dairy companies, Fonterra, Open Country Synlait, and A2 Milk.
The forecast net profits after tax of Synlait at $1.21/kg milksolids processed and of A2 $2.76 when compared with Fonterra 87c illustrated how far ahead those value-add companies are.
“If profits were bundled into milk price there would be more than $1/kg additional, compared with Fonterra,” TDB warned.
TDB published its first dairy company comparison in April last year and has a second edition nearing completion.
Director and long-time dairy industry executive, analyst, and investor Geoff Taylor hopes the new analysis will be useful in the review of the dairy industry, announced by O’Connor in February.
A spokesperson for the minister said the terms of reference for the review will be written and presented to Cabinet in April.
The actual review is expected to take a year and therefore any possible amendments to the DIRA will occur in 2019, following the normal Parliamentary procedure.
The form of the review and who will do it have not been finalised, the spokesperson said.
