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 Fonterra farmers already under the pump due to weather-related events, cost pressures, cash flow and labour shortages, how the Scope 3 emissions story will play out is currently unknown and causing uneasiness.
The co-operative has been meeting with farmers and will soon announce what the Scope 3 target will look like.
Scope 3 emissions include carbon emissions not produced by the company itself, but by those that it's indirectly responsible for, like farmers.
Fonterra says that 91% of its group emissions are from behind the farm gate.
Farmers are being told that the co-operative is under increasing pressure from both customers and consumers, regulators, and more and more from the financial sector, to put out a scope 3 emissions target.
Fonterra Co-operative Council chair John Stevenson told Dairy News that Scope 3 emissions “is generating some apprehension among the shareholder base”.
There is uncertainty around what steps farmers can take on farm to reduce their emissions intensity, and for some there may currently be a gap between “what farmers can deliver compared to what customers want”.
“As a council we are here to bring some balance to the conversation through representing the views of our farmers.”
Stevenson notes that the situation on farm is already challenging.
“Combine this with the pace of change required from regulators and changing customer demands, it is having an impact on how we farm.
“Regarding changing customer demands, our farmers are looking hard to Fonterra for evidence that changed practices on farm will deliver value into their pockets.”</p
Stevenson points out that Fonterra is well placed to help farmers overcome some of the sustainability challenges ahead.
“There is no doubt we will see further pressure from Government, customers and banks. The key will be to make sure Fonterra takes its farmers on the journey, provides support and does not set requirements that are too difficult to achieve.”
Fonterra farmers are telling the council that the pace of change within the last 18 months is causing pressure.
And Stevenson points out that the pressure is not just from a financial standpoint, it comes at a time when many farms have been understaffed due to workforce shortages.
“Our members are doing more on the farm and more off the farm,” he says.
Uncertainty also affects investment in the future.
Stevenson says there’s lot of technology out there to help with productivity, but farmers need certainty in the future to commit to these investments.
He says the forecast farm gate milk price is still under pressure.
“Farmers margins and balance sheets are as squeezed as they have been for a long time.
“There is uncertainty and volatility in the global market. Farmers will look to what they can control and consider their budgets carefully.”
