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 conversation has been going on within Fonterra for years about a pricing mechanism that can incentivise investment and change by farmers, Kingi claims.
“Farmers respond to price signals and they also can respond to penalties,” says Kingi, an expert in agricultural development and primary sector analysis.
“The introduction of agriculture into the ETS (emissions trading scheme) and the confirmation of a carbon price… is a component of information that farmers would be able to incorporate into rejgging and reconfiguring their farms,” he told the Environmental Defence Society ‘Tipping Points’ conference in Auckland.
Regarding price signals, giving dairying as an example, he says there is a quality component in there for protein and a penalty for somatic cell counts. But largely if you produce more milk you get the same price as every other farmer.
“So it is an incentive to increase productivity. What is needed is a mechanism to diversify and separate out those farmers who are willing to invest in technology to reduce their emissions output or emissions component against the product output.
“Right now every dairy farmer in the country has an Overseer file that gives a profile of their kilograms of nitrate leached or phosphate leached per hectare and there is also information there on kilograms of greenhouse gases as well.
“We need to move away from kilograms of emissions per hectare to one directly linked to kilograms of output, so that the farmers who are prepared to invest in improved technology to reduce their emissions are rewarded for it.”
Kingi says if regulation is the only tool to meet catchment limits and community expectations on water quality then the farming community will always be behind.
Carolyn Mortland, Fonterra’s director of social responsibility, says environmental standards within five years will be far higher than today.
“It is not helping anyone in New Zealand to not factor in the externalities because we need to adapt,” she says.
“Our market is an international market, 95% of our food goes offshore and there are many dynamics in play.”
These include the millennial consumers and what they want, what our competitors are doing with food production in Europe and the US, the influence of new technologies and how the producers of the future in Africa and parts of Asia will respond, “not to mention our responsibility here in NZ to protect our environment”.
Of course it’s scary for farmers, she says, because it means a transition. We need to know the environmental limits.
“I started feeling hopeful about water quality in New Zealand when we started saying ‘let’s find out how much our rivers can take’. It is mind boggling that we haven’t known.”
