The dairy co-operative, Westland Milk Products, has cut its forecast milk payout to suppliers by up to 80 cents because of oversupply on world markets.
A cow crossing on a South Canterbury dairy farm. Photo: RNZ Maja Burry
It's now forecasting a payout of between $6.10 and $6.50 a kilo of milk solids.
The company's chair, Pete Morrison, said the factors driving the revision were largely out of Westland's control, involving international market forces and an increasing abundance of milk supply globally.
Mr Morrison said while this was not the news the company's 400 farmer suppliers would want to hear, the last thing it wanted to do is over promise and under deliver.
"It's better shareholders are prepared now and budget accordingly," he said.
He said some internal factors were also influencing the payout.
"Ironically, we have had a very good start to the season. However, the build up to peak milk period is higher than predicted and lasting for longer. While this might appear to be a positive for the co-operative, the reality is that during peak our processing capacity means we have to produce mostly low value bulk commodity powders in order to ensure we can get the milk through.
"That means we have to make less high value product, such as Infant and Toddler Nutrition, which give us the best returns," he said.
Mr Morrison said, however, that Westland was making much improved progress on the matters it had direct control of.
Earlier this month the dairy giant, Fonterra also revised down it's forecast payout, sighting soft global prices and mounting oversupply.
Fonterra reduced its forecast by up to 50 cents to between $6.25 and $6.50 a kilo of milk solids.