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.
Fonterra this month told organic milk suppliers it is committed to developing the business long term to meet escalating demand.
But the organic farmers want an even higher premium.
Organic Dairy and Pastoral Group chairman and South Canterbury dairy farmer Bryan Clearwater says though he is pleased at the increase, Fonterra based its calculation of the new premium on a survey of farmers that he thinks was badly flawed. Only time will tell whether the new premium is enough to encourage more farmers into organics, he says.
Clearwater says that, given global demand for organic dairy products is strong and growing, that it fetches prices 2-3 times that of non-organic, and that it is much kinder to the environment, he wants Fonterra to put more effort into actively pursuing organic sales and supporting organic farmers.
The number of organic farms supplying Fonterra has dwindled 40% over the last five years, he says.
Fonterra scaled back its unprofitable organic dairy operations in 2011 as public appetite for premium products waned with the protracted economic downturn. The co-op cut processing capacity and concentrated most of its North Island suppliers on its Hautapu plant in Waikato.
Now it has refreshed its growth strategy for organic milk, its global business manager for organics, Craig Deadman, saying the ‘refresh’ will enable it to grow the business profitably and sustainably.
“This strategy reflects the volumes our customers have indicated they need to satisfy increasing demand for organic dairy.”
Deadman says that, while organic dairy remains a specialty product, more people are choosing such products and he expects this trend to continue, particularly in South-East Asia, China and the US.
“Chinese consumers are quickly developing a liking for organic dairy and organic options are always welcomed.”
Asian consumers also favour organic milk powders, especially infant formula and fortified milk powders.
Fonterra recently launched Anchor organic milk powder in China and it is reportedly popular with shoppers.
Deadman says growing Fonterra’s organics business depends on developing and selling higher-value specialty products at premium market rates “to enable all Fonterra farmers to benefit from heightened returns”.
