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.
He told the co-operative's annual general meeting in Methven last week that the strongest motivating forces are offshore.
Farmers, who have faced an avalanche of regulations under the previous Labour Government, are expecting a more sympathetic hearing from the incoming government, likely made up of National, ACT and NZ First. Both National and ACT favour delaying the agriculture sector's entry to any emissions trading scheme.
But McBride hinted that farmers shouldn't expect a change in Fonterra's sustainability drive because of changes at the Beehive.
"I do want to be very clear with you that, respectfully, the need for an on-farm target does not change because of the general election," he says.
"The strongest motivating forces are offshore and, from my perspective, are both geopolitical and commercial in nature."
McBride says being a leader in sustainability is a fundamental part of the co-op's strategy.
He cautioned that sustainability and emissions are also the new trade barriers.
"We could essentially be locked out of some of our most valuable markets if we cannot demonstrate emissions reductions."
He noted that the EU is introducing a Carbon Border Adjustment Mechanism that applies carbon tax to certain products imported into the EU. The EU is also looking to impose carbon charges on transport of goods to market, levied on all large ship entering their ports.
The other main commercial driver is access to funding and capital - for both the co-op and individual farming businesses.
McBride says the main banks and financial institutions have set emissions reduction targets.
"Our on-farm emissions and the co-op's operating emissions are a large part of their Scope 3 emissions, which they are seeking to reduce."
Some Fonterra farmers could switch their supply to other processors if Scope 3 target becomes financially difficult to achieve.
McBride acknowledged that some Fonterra competitors may use this as a procurement tool in the short term.
"But the commercial reality of doing business at scale internationally will capture all of us in time. They will be late to the table, and presented with an even bigger elephant to eat."
