Overseas tariffs milk $500m from board

By Philippa Stevenson

On the eve of Apec, the Dairy Board's annual review of its performance in the international market makes a potent case for freer international trade.

Chairman John Storey said the board had 31 per cent of the accessible international dairy market - up from 19 per cent 10 years ago - but was seeing the cost in tariffs rise from $450 million in 1998 to this year's $500 million.

The board was a major supporter of Apec, which it saw as a springboard to an improvement in trade liberalisation through the upcoming World Trade Organisation round, he said.

Chief executive Warren Larsen said tariffs cost the average New Zealand dairy farmer $35,000 each, or 62 cents per kilogram of milksolids, in lost revenue.

He said in a tough year of global trading, commodity prices were the lowest in 10 years for all products - cheese, skim and whole milk powder and butter - marketed by the board's ingredients business, New Zealand Milk Products.

The impact of lower commodity prices on farmer payout amounted to $1.50 per kilogram of milksolids, Mr Larsen said. "That's the hit we would have taken if we were only selling commodities. The industry is running extremely fast to digest the impact."

Despite poor market returns because of economic crises in Asia and Russia, and the impact of subsidy regimes in the US and Europe, NZMP's revenue was up by 4 per cent and volumes by 2 per cent to produce a profit of $264 million.

The board's total revenue for the year was $7.4 billion, up on 1998's $7.2 billion, and providing an 8 per cent, or 25c, improvement in payout.

Farmers received $3.25 per kilogram of milksolids, or $100 million more than in 1998 when they were paid $3 by the board. Manufacturing companies have already announced their top-up margins.

The board said the improved payout was attributable to foreign exchange benefits of 65 cents per kilogram of milksolids, and cost reductions by manufacturing companies. However, weaker international prices across both the board's business arms cost 50 cents per kilogram of milksolids.

A rise in return on total gross assets to 17.4 per cent from 15 per cent was the result of earnings before interest and tax rising $79 million to $440 million.