What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
However, another lift in the advance rate would be risky as Fonterra could end up overpaying farmer suppliers and be forced to claw back money.
Fonterra Co-operative Council has previously pushed hard for more cash to be returned to farmers quicker.
Council chair John Stevenson says, as a result, Fonterra changed its advance rate guidelines to pay farmers a higher percentage of the forecast milk price earlier.
But he adds that further increases to the advance rate would come with an increased risk of Fonterra over-paying if there are further declines in milk price.
This month, Fonterra shareholders received $6/kgMS as advance rate for milk supplied in July.
However, for the rest of the year, farmers can expect $5.25/kgMS in advance rate from Fonterra.
"There is a long way to go in the season yet," Stevenson told Dairy News.
"If we continue to see challenges aroun milk price then there will likely be increased calls for Fonterra to use the strength of its balance sheet to support its owners."
