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.
It’s great to see the Feds, Fonterra and DairyNZ each acknowledging that sustainability is an important issue and developing strategies appropriate to their organisations. These three, together with other dairy companies and the Dairy Women’s Network, will launch a new Strategy for Sustainable Dairy Farming in a few months, which they say will guide the investment and activities of the industry.
These priorities, reviews and strategies are to be welcomed – as long as they ultimately benefit farmers. My question is what will the farmers’ strategy have to be?
Will they have to go cap-in-hand to the bank manager for a larger overdraft to achieve the sorts of sustainability these organisations have in mind? Just what extra research will be needed, and can most of that research be done in a real on-farm situation?
One of the problems is that sustainability means different things to different people. To Fonterra it means, amongst other things, more milk and consistent supply. To DairyNZ it might mean higher and consistent funding. To many farmers it probably involves higher and more consistent production.
Given these different expectations and interpretations it isn’t surprising there is confusion about how farmers are actually going to achieve sustainability.
For some it may mean a high stocking rate with feed supplies propped up by maize, PKE and lots of nitrogen. For others – in sensitive catchments – it probably means optimising Olsen P, low solubility phosphate, limited N and tight management of effluent treatment and disposal.
The wise ones will be asking: what is the most profitable approach?
There is a real danger that the true intent of words like sustainability and profit will be lost in the jargon and different interpretations. There are wide variations in what people understand by them and how they measure them.
This is significant because, for farmers, sustainability and profit should be intimately linked. In fact, I am convinced sustainable options have to be measured in profit terms and then managed to achieve maximum returns to farmers. Why make any change unless it is going to be profitable?
The key to all this is how you measure profit. The best I have found – in over 50 years of searching – is: cents per kilo of dry matter eaten daily by stock. This may sound complicated, but it is actually straightforward and certainly the most accurate way of comparing management options.
A simple example: you might be wondering whether to put on more stock and therefore using more fertiliser and/or supplementary feeds, or less stock and doing them better with existing resources.
Using your own farm data in new, innovative on-line software you can determine which option will be the more profitable. Not just today, but also next week, next month, next year, and forecast for several years after that. The more sustainable option becomes obvious when profit is the measure.
I hope the new Strategy for Sustainable Dairy Farming takes this measure of farm profitability into account, rather than just tinkering with generic industry figures or indirect estimates like EFS.
• Peter Floyd is the managing director of Cogent Farming Business Systems Ltd www.profitfocusedfarming.com Tel. 0800433376 or 0275968796
