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.
This article is in relation to a recent Situation and Outlook report from New Zealand’s Ministry of Primary Industry.
MPI’s healthy outlook of a 5.5% rise in dairy export revenue to the end of June 2019 is based on factors that are both within and beyond the control of our farmers, Fonterra or the Government.
Factors beyond control are typical for the agricultural sector; the sustained good weather and pasture growth over spring and summer in New Zealand, Australia’s extreme climate creating a difficult season there, consecutive monthly declines in EU dairy output, and expected production declines in the USA over the next quarter.
New Zealand farmers are used to juggling these types of variables, and have done it well for a long time, to the benefit of the country.
The agriculture sector delivered about $43 billion of the country’s total export earnings of $82.3 billion (including tourism) last year. Of that figure, dairy accounted for just over $14 billion, or 17% of the country’s earnings in the year to January 2019, a level of contribution it has delivered for much of the last 15 years.
One aspect that is under our control is how and where we focus our products on the value chain. We believe there’s a premium to be earned internationally from products backed by our New Zealand heritage and provenance. The quality of our milk comes from grass-fed, free-roaming cows reared on land that is looked after and cared for. It is rare and sets New Zealand apart on the world stage.
Dairy products like cheese and yoghurt are experiencing significant market share growth internationally, and the origin, premium qualities, and reputation of our milk provides a foundation for success. It’s a point of difference that perhaps has been taken for granted in the past and one that we are now amplifying in the global marketplace.
That dovetails into on-farm sustainability and reducing emissions. Many want to see quicker actions delivered by the agriculture sector. Count us and farmers among them. New Zealand farmers have among the lowest greenhouse gas emissions per litre of milk collected in the world. We can produce a litre of milk for about half the emissions of the world average.
Of course, we’re not stopping there. Racing the clock is the challenge scientists are grappling with. In February, an independent review of the New Zealand Agricultural Greenhouse Gas Research Centre (NZAGRC), found New Zealand is a world leader in all fields of agricultural greenhouse gas research and endorsed the programme’s performance to date. Our focus will be on putting this research into practise.
Our dairy farmers have already spent over $1 billion on environmental improvements and we continue to work with them, local communities and councils to deliver water quality improvement at a catchment-wide scale. We’re focussed on building strong relationships and utilising the latest technology to accelerate progress and ensure our farmers continue to lead the way in sustainable farming practices.
Our future is in protecting and enhancing New Zealand’s unique provenance proposition. It’s one of the keys to pushing New Zealand products up the value chain.
