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.
About 50% of suppliers will benefit from deferring the charges until October, Wilson says. These can be several thousand dollars for an average farmer.
Fonterra’s suppliers are required to forecast how much milk they will deliver in a season to help the cooperative plan and manage its processing. Farmers who end up supplying below the capacity forecast are charged on June 20 and those oversupplying are compensated at the same rate.
Fonterra doesn’t incur any expense in this exercise. However, this year the capacity charges have been deferred to help cash-strapped farmers in drought areas until October 20, when suppliers will get their final payout and dividend for the current season.
Wilson says the co-op will compensate farmers, mostly those in the South Island, who have overshot their forecasts on June 20. The co-op will meet interest charges on financing the compensation.
“We are aware of the acute cash flow problems being faced by some of our farmers,” he told Dairy News. “Deferring the capacity adjustment charges is another way the co-op is helping these farmers.”
Wilson says South Island farmers faced similar charges when bad weather affected their milk supply. The co-op also deferred charges in those instances.
Federated Farmers Dairy vice chairman Andrew Hoaggard is pleased the co-op has listened to its concerns. “Federated Farmers knew milk volume forecasts were being undershot in the North Island especially. Our members raised legitimate concerns about capacity adjustment charges and so we asked Fonterra to note them.”
Hoggard points out the charges don’t apply to farmers supplying smaller co-ops Tatua and Westland Milk Products.
He says many farmers are breathing a sigh of relief on hearing this news. “Fonterra needs to be recognised for doing this because it really is an abnormal season. The idea behind dairy farmers accurately forecasting milk production is to ensure the most efficient use of Fonterra’s stainless steel.
“For some farmers this season these charges could have amounted to fairly large sums. It also means money, which is already in short supply, will now be saved.”
