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.
Jason Herrick says an additional payment of just 1-2c/kgMS doesn’t make financial sense for farmers.
“As far as the offer goes, most farmers would have to invest a significant amount just to get that premium,” Herrick told Rural News.
“So, therefore it doesn't make good financial sense to do so. If you are going to dangle a carrot, make sure it is something descent to encourage change or what is going to be the actual beneficial outcome: zero.”
Global food giant Nestle will provide Fonterra farmers who achieve one of the three levels of Fonterra’s The Co-operative Difference framework during the 2023/24 season. The Co-operative Difference framework sets out the farming and business practices that will help farmers to stay at the forefront, such as quality, safety, and sustainability. It has three levels: the start, the mid-point, and the summit. The framework also rewards farmers that meet certain criteria across five focus areas – environment, animals, people & community, milk, and co-op & prosperity.
The agreement between Fonterra and Nestle comes one year on from the unveiling of a partnership designed to help reduce on-farm emissions. Fonterra recently announced an ambition of being net zero by 2050, with 2030 targets including a 30% intensity reduction in on-farm emissions.
Some Fonterra farmers have questioned whether the extra work around sustainability will result in premium payment for their milk. After Fonterra’s announcement of the Nestle premium, some farmers took to social media expressing anger at the paltry offer from Nestle.
Herrick says he believes there will be a reason Nestle offered the small premium “but don't want to comment as it may sound like a conspiracy to some”.
“Nestle would do far better if it cleaned up its own back yard, instead of focusing on a country that is doing far better environmentally than its home base.”
Editor's note: Fonterra has clarified that a majority (83% 2022/23 and 72% 2021/22) of its farmers already achieve The Co-operative Difference payment at some level.
