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.
Spierings says bringing forward capital investments will provide:
• Greater flexibility to take advantage of relative market prices;
• The additional capacity will reduce forced making of lower returning products;
• The ability to take higher volumes from existing suppliers and new volume from joining suppliers.
"This will result in additional capital expenditure of $400 - $500 million over the next three to four years," says Spierings.
"Even with fast-tracked investments, adding capacity will take time so we also have a programme in place to increase throughput in existing plant during the 2015 financial period."
The cooperative predicted growing demand and that demand would outstrip supply growth In its business strategy developed in 2012, he says. The past six months have shown that the trends identified in our strategy are moving faster than expected.
Fonterra needs to ensure its farmers can confidently grow supply, he says. "We are in a competitive market for milk, so retaining and growing our New Zealand supply is always a priority. Returning the highest farmgate milk price is crucial, as good returns enable our farmer shareholders to cover their rising costs and to invest in their farms and futures.
"To support on-farm growth we are successfully offering more flexible supply contracts which offer staged payment options for shares. We have also provided more financial flexibility for Farmer Shareholders by piloting a Guaranteed Milk Price scheme, enabling them to lock in the price paid for a percentage of their milk. We will continue looking at new ways of providing financial flexibility over the course of this year."
See Fonterra interim results, Rural News section
