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.
"The calibre of new suppliers is impressive and complements our existing supply network," says managing director John Penno.
With 201 suppliers now, Synlait says greater customer demand for nutritional products and more production capacity with a new large-scale spray dryer has created the opportunity.
The business could not accept everyone who wanted to be a supplier and now has a waiting list.
Since production began in 2008 at the Dunsandel site eight suppliers have left, four because of a change in farm ownership.
"We have one contract for all milk suppliers that is a rolling three year agreement, providing certainty to ourselves and our suppliers. Our relationships are sustainable because we're all focused on making more from milk and offer everyone the same terms," Penno says.
Synlait's Lead With Pride and Special Milk programmes (which create products like the a2 Platimum Infant Formula ) reward suppliers for differentiating their milk and creating value on farm through a premium payment in addition to Synlait's milk price.
Synlait says the premiums aren't a solution to the current pricing pressures, but they help.
"We expect around $6 million in premium payments will be made this season. More than 50% of our suppliers will be paid a premium," says Penno.
"If you take an average of that payout at $60,000, all of it will be welcome to any dairy farmer in the current climate."
