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.
Building on Guaranteed Milk Price (GMP) pilot in the 2013/14 season, Fonterra has developed the programme to give farmers even more flexibility to help manage the effects of commodity price volatility and give greater income certainty.
There will now be two opportunities in the 2014/15 season to secure a GMP on 60 million kgMS – up to 40 million kgMS is available in June, and up to 20 million kgMS is available in December. There is also a new approach to determine each GMP and allocate the available volume.
Fonterra's director of milk supply, Steve Murphy, says with the new season's opening forecast farmgate milk price announced at $7 per kgMS, farmers who are looking for a GMP can now offer a percentage of their estimated milk production across one or more of five prices ($6.60, $6.70, $6.80, $6.90, and $7) at and below the forecast Farmgate Milk Price.
"The pilot that we ran last season attracted such a high level of support that we had to scale offers back to 40% of the original applications. At the time, many farmers were disappointed that their quantity was reduced," he says.
"In the event of over-subscription this season, applications will not be scaled back pro-rata across all volumes of milksolids. Instead, we have introduced a new process so that farmers who really want some certainty on their Milk Price can now have the flexibility to weigh up how many milksolids they are willing to offer at one or more of the five prices".
Once the applications close, the total kgMS offered by all applicants at each price will be totalled. Allocations will be made based on the prices at which milksolids were offered from the lowest price up and the GMP will be determined at the highest price at which the total quantity of milksolids offered reaches the specified limit.
All accepted applications will receive the same Guaranteed Milk Price, the June GMP or the December GMP. However, even with this new approach, depending on the total milksolids offered at each price, some farmers may not get all or any of the volume they offer.
For applications made in June, farmers can apply to fix a GMP for between 10% and 75% of their estimated milk production for the 2014/15 season. Farmers have until June 20 to apply.
The second GMP opportunity will be available in December for production supplied December 12014 to May 31, 2015.
Applications can be made online via Fencepost or interested farmers can request an application pack from Fonterra's Supplier Services team on 0800 65 65 68.
