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.
“With A2 part of the business proposal we have committed to, there is capital investment on our sites to segregate milk,” he says.
“The ability to take a small amount of milk on a site is really expensive as you change product mix, clean the plant, start again repacking -- it’s really expensive to do. So it’s likely, but not definite, that you will see more segregation [in future].
“The key driver is that 87% of your milk and mine goes into markets around the world where we pay a tariff greater than 10% -- often [over] 100% for a product. We don’t have easy access to the wealthy markets of the world where consumers think about making choice because they can afford choice.
“US, Europe, Korea, Japan, Canada all sit behind significant tariff barriers.
“In China, where we have a reasonable free trade agreement, consumers are wealthier; there about 40 million in Beijing and Shanghai. The GDP per capita in Beijing and Shanghai is equivalent to the Swiss GDP per capita. You have consumers there who truly can make a choice and have the luxury of choice.
“It will be market driven we are thinking; our mindset is changing and technology is assisting as well. There is likely to be more segregation than over the last 20 years, but it has to be consumer driven.”
