Dairy product prices have slipped to a five year low.
Business writers Fran O'Sullivan and Alexander Speirs call the shots here every week
Agribusiness comprised 20 of the Deloitte Top 200 companies for 2014 with Fonterra once again leading the pack as New Zealand's largest company.
Overall the 20 agribusinesses accounted for $33 billion of the total $167 billion of revenue the Top 200 sported over the past year -- just under 20 per cent of total revenue generated.
Dairy turned in a strong year on the revenue front. Hokitika's Westland Dairy improved revenues by 43.9 per cent to move from 66th position last year, shifting inside the top 50 at 44th place. Similarly, Synlait Milk grew revenues by 42.9 per cent to move up 20 places from 79th to 59th.
Despite that growth in revenue however, profits were down across the board -- Westland Dairy the hardest hit with profit almost halved year on year. Part of this can be attributed to an unpredictable global dairy market -- which saw prices drop by as much as 35 per cent throughout the year.
It's not surprising that margins are tighter. NZ's internationally focused dairy companies have faced problems getting some products, particularly infant formula, into China and increased costs.
But if they are to build sustained profits, the firms will have to adapt their strategies in the face of the continued drop in global dairy prices. This week, dairy product prices slipped to a fresh five-year low in the latest fortnightly auction, because of a drop in whole milk powder.
The GDT average winning price slid 1.1 per cent to US$2513 ($3222), the lowest level since August 2009, and down from US$2561 two weeks ago.
Right now it looks as if the agribusinesses will find it difficult to sustain their current Top 200 rankings in 2015.
Tatua Dairy was the exception amongst the dairy players -- retaining its rank of 129th with 1 per cent revenue growth while more than doubling its profit to $10.17 million. While their overall revenue at $230.9 million is only a fraction of Fonterra's, Tatua's strategy to exploit highly specialised niche markets with its products has left it less exposed to price fluctuations and offered its farmers higher payouts and increased stability.
Silver Fern Farms, the only primary producer outside of Fonterra to feature inside the Top 20 companies saw revenues fall by 2.2 per cent, but narrowed its losses year on year to $28.5 million -- an 8.3 per cent improvement. As the co-op undergoes a restructure following the departure of long-standing chief executive Keith Cooper, getting the books back in black will be a top priority for his successor Dean Hamilton.
Sticking with the meat industry, Southland based Alliance Group turned in a modest of $5.6 million off the back of $1.38 billion of revenue. It was a decent improvement from last year but a 1.1 per cent return on revenue won't cut it long term -- especially with exports continuing to grow.
Zespri saw revenues fall by 15.8 per cent, the largest drop for a company within the top 30 of the list -- seeing it topple three places from 25th to 28th as the kiwifruit industry continues to recover from PSA -- the bacterial vine disease which crippled large chunks of the industry throughout 2012.
Profits were especially strong for forestry, with Oregon group turning in a mammoth $161.8 million profit to trail only Fonterra amongst the primary producers. Pan Pac Forest Products also had a strong showing, with a $98.8 million profit -- both ranking in the top 30 for profit makers despite having revenues of only the 76th and 98th largest respectively.
At the other end of the spectrum however, Norway's Norske Skog Tasman wrote down an $83.1 million loss -- improved from $249.9 million last year as it contends with falling demand for its product as the newsprint industry continues to contract.
For the first time this year, a separate list featuring Maori companies was compiled -- with Ngai Tahu leading the way -- with a significant portion of its investment portfolio featuring agriculture businesses. Also on the list at No4 was Aotearoa Fisheries, which owns a 50 per cent stake in Sealord amongst other businesses and ranked 197th on the main list.
Fran O'Sullivan is a business columnist for the NZ Herald and Alexander Speirs is a business journalist for Herald Business Reports Revenues mask profit woes