Chinese dairy giant Yili steers NZ’s Westland to record revenue as its cheap butter floods Aussie shelves

New Zealand’s Westland Milk Products – owned by China’s Yili – has been giving Aussie shoppers hip-pocket relief at the checkout.

Westland is leveraging off the reputation of the west coast region of New Zealand’s South Island as a source of “premium dairy products and ingredients”.

China’s biggest dairy company, Yili, is behind the wave of cheap New Zealand butter imports that have been undercutting local products on Australian supermarket shelves.

Yili bought Westland Milk Products – maker of Westgold butter – for $NZ588m ($547.7m) in 2019 and the imported brand is cheaper to buy than Woolworths’s private label range made from Australian milk.

It has been a winning strategy for Yili, with Westland generating annual revenue of $NZ1.04bn and passing $NZ1bn for the first time. Meanwhile its profit soared to $NZ39m which is a $NZ120m turnaround on the previous year.

The company generated its bumper earnings amid a season of record farmgate milk prices and paying a premium of NZ10c a kilogram for milk solids over bigger rival Fonterra.

At Woolworths, Westgold butter is selling for $1.45 per 100g, while the supermarket chain’s private label product made from Australian milk is priced at $1.72 per 100g.

This compares with Australian-branded products Western Star and Devondale which are priced at $1.80 and $2.12 per 100g respectively.

Westland Milk Products chief executive Richard Wyeth.

Westland chief executive Richard Wyeth said the company was focused on “high-value product sales”, leveraging off the reputation of the west coast region of NZ’s South Island as a source of “premium dairy products and ingredients”.

Mr Wyeth praised Yili for helping Westland breach more than $NZ1bn in annual revenue.

“Having the support of Yili has enabled us to invest in our people and the infrastructure needed to increase production and sales of value-added products,” he said.

It comes as New Zealand’s farm gate prices have fallen from their record highs last year, with Fonterra cutting the price it pays its New Zealand farmers to $NZ8.20/kg ($7.64) to $NZ8.80/kg on milk solids.

While Australian farmers have been spared the downgrade – Fonterra has committed to paying them $9.55/kg for the rest of the season – the near $2/kg price gap means it is now cheaper to import New Zealand dairy brands. And Woolworths says it has been passing on the savings to its customers as the cost of living soars.

“Our close neighbour, New Zealand, is the largest exporter of butter globally. There are different market conditions in the dairy sectors in Australia and New Zealand, and wherever we can we will pass savings on to our customers. This is reflected in the shelf price,” a Woolworths spokeswoman said this week.

“We want to ensure that our customers have access to great value and great-quality dairy products, at a time when cost-of-living pressures are having a real impact on Australian families.”

Meanwhile, Australia’s milk production has been in freefall in the past four years as farmers faced the perfect storm of drought, higher water and feed prices, and more recently labour shortages and the fallout from the war in Ukraine.

The national milk pool has lost about 1 billion litres of supply since late 2018, and more than a third of that has evaporated from northern Victoria, while the dairy-rich western part of the state and South Australia has shrunk by almost a quarter, according to food industry analyst Fresh Agenda.

The rapid contraction has fuelled competition in milk sourcing and higher farmgate prices, but has made Australia dairy products less competitive. Most of Australia’s dairy products are consumed locally, which helps shield local farmers against global price volatility.

New Zealand prices are more dependent on global markets, given the nation exports about 90 per cent of its products.

Following New Zealand’s farm gate price downgrade, Mr Wyeth said Westland would take a “cautious approach” to managing costs to “ensure it could continue to pay a premium for milk”.

“Overall, the business is well placed for 2023. Our value-added strategy is going from strength to strength.

“We are excited about what can now be achieved for the future. While ingredient prices are more subdued in 2023, which will impact our revenue, the team in China sees the market being reasonably stable over the coming 12 months with balanced supply and demand but we are also positioned well in other international markets for future growth.’’