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.
An innovative new project dubbed Pay-As-You-Save (PAUS) was launched last week on a Timaru farm. The initiative offers Fonterra farmers the option to lease new cutting-edge systems rather than having to purchase them as they've typically done in the past.
Fonterra has teamed up with chilling systems manufacturer Cool Group and New Zealand Green Investment Finance (NZGIF). PAUS has been set up as a subsidiary of Cool Group. NZGIF is providing the necessary financing for the leasing of these chilling systems.
Jason Patrick, chief investment officer NZGIF, says by financing this initiative they're championing a transformative step in sustainable farming practices.
"The $10m asset finance facility from NZGIF should assist Cool Group to offer low emision chilling infrastructure to over 200 farms in the next three years," says Patrick.
Cool Group chief executive Allan Steele says PAUS is more than just a product offering.
"It's a commitment to supporting sustainable dairy farming, reducing our collective carbon footprint, and enhancing the efficiency of milk production. The environmental and economic advantages of the PAUS project have been field-proven, marking a significant stride in the journey to more sustainable milk production. And we are excited to be working with all our partners in making a difference."
Fonterra says milk chilling systems are critical in ensuring milk gets to the required temperature of 6°C or below within two hours of milking, but the units represent a significant capital investment for farmers and can become increasingly costly as they age. Older units also use hydrofluorocarbons (HFCs), which is a coolant gas that is being phased down in New Zealand and across the globe and are much more limited in terms of their technology and features.
Anne Douglas, group director of Fonterra Farm Source, says the co-operative was keen to be involved given the project brings both short and long-term benefits.
"We're delighted to be part of this collaboration because it delivers value to Fonterra farmers through things like improved efficiencies while also heling lower on-farm emissions. It's an exclusive deal that we can offer in large part because of the scale of our co-operative and strength of our partnerships."
Fonterra supplier Bruce Murphy of Timaru, an adopter of the technology, believes the PAUS will be beneficial to farmers.
"After years of wrestling with rising repair costs and aging chilling systems, the PAUS initiative will be a gamechanger for Fonterra suppliers like me," says Murphy.
"The hassle-free nature of the scheme means I have more time to do other things on the farm and its leasing model eases the financial burden. The benefits of extra hot water, lower power bills and the environmental aspects really help sustainable farming and improve milk quality."
Furthermore, Purpose Capital, NZ's largest private sector impact investment fund, has entered into a strategic alliance with Cool Group by investing equity to foster business growth.
Bill Murphy, executive director, says collaborating with Cool Group Limited and being part of the PAUS project is an exciting venture for them.
"Traditional refrigerants are a considerable contributor to global warming, and their proper management and substitution represents one of the most effective climate solutions available. We're committed to investments and drive positive change with measurable positive impacts, and this initiative is a testament to that commitment. We're thrilled to be working alongside all the partners in this venture."
PAUS Pays Off
Fonterra says there are several benefits for farmers as well as the environment, including:
- Hassle-free maintenance: full servicing of the chilling units overseen by Cool Group as part of the lease agreement.
- Cost effective: farmers have lease payments deducted from their monthly milk cheque from Fonterra, with the option to extend the lease when it rolls over or buy the unit at any point.
- Electricity savings: the units generate hot water, unlike most existing systems where heat is wasted. Farmers can use this for cleaning the milking shed and make significant savings on their electricity bill. This feature, combined with how efficiently the system itself runs, mean that dairy shed power consumption can be reduced by up to 30% on average.
- Reduced emissions: the leased units use what's known as fourth generation refrigerants instead of HFCs. They have shown a reduction in CO2e of up to 80% compared to older systems.
- Milk quality benefits: milk snap chilling to 6°C or below to comply with milk chilling regulations. Older systems can struggle to achieve this, particularly as they age.
- Improved technology: the units deliver transparent data and allow real-time remote monitoring.
