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.
That's the view of Labour's primary industries spokesman Damien O'Connor who says that, on one day alone, Fonterra chair John Wilson was saying the market should pick up at the end of the year, while HSBC analysts were saying there is no chance this is likely to happen.
O'Connor says farmers who want to make better long term decisions are getting messages that are most alarming because they need a clear steer.
"While of course it is hard to predict the medium term market situation, the analysts and the farmers who own the company pretty much need to be on the same page when it comes to advice, and that is not happening," he told Rural News.
"Fonterra hasn't helped with its poor communications to farmers and the wider public. I have seen statements that are hopeful rather than helpful and I think farmers are getting a little tired of that and are seeing through it."
O'Connor says Fonterra has to speak out of both sides of its mouth given that it's talking to investors and unit holders on the one hand and to farmer suppliers on the other.
He believes farmers need to take a very conservative strategy in their businesses. Farmers who have already wound back their costs should continue to do so and others who haven't should do so immediately.
"I [favour] the long term projections by economist Peter Fraser that a $5.00 payout is the norm, plus or a minus a dollar. This means in a good year a $6.00 payout and in a bad year $4.00 and this is probably the paradigm farmers should be working in."
O'Connor believes the dairy industry is in for a major restructure and says there are indications that land prices will fall 20-40%.
