Synlait's challenge to win back farmer goodwill
Last week's approval of a recapitalisation plan for troubled milk processor Synlait is good for Canterbury and gives farmer suppliers a lot of security going forward, says farmer Willy Leferink.
The extra payment comes with conditions: to be eligible farmer suppliers must not have a cessation notice in place on 31 May 2025, are supplying milk to Synlait in the 2025 / 2026 season and remain un-ceased until 31 August 2025.
The listed company, which will be majority-owned by Bright Dairy of China from tomorrow, is fighting to keep suppliers on board. Under Synlait’s milk supply agreement, farmers must issue a two-year cessation notice before withdrawing their supply. Therefore, farmer suppliers would have to issue another cessation notice before May 31 this year for supply to be withdrawn by the end of 2025-26 season.
The one-off payment will be based on milksolids supplied in the 2024-25 season and will also be made available to new suppliers.
Synlait chief executive Grant Watson says the company began FY24 with too much production capacity, unsustainably high levels of debt, significantly higher interest rates, and sharply declining demand for infant formula at a macro level.
“Although those challenges are evident in the year’s result, we begin FY25 with new momentum and a stronger financial foundation.
“Our future success depends on a strong, stable and competitive farmer base. Providing farmer suppliers with compelling reasons to remove cessation notices is a top priority, ensuring we have the secure milk supply to underpin our business recovery.
“We have announced additional payments for our farmer suppliers to recognise how critical their milk supply is to Synlait’s future. We hope these combined actions will accelerate cease notice withdrawals.”
While Synlait has historically enjoyed a trusted relationship with its farmer suppliers, the company acknowledges it now needs to work hard to regain confidence.
A significant majority of farmer suppliers issued cessation notices ahead of 31 May 2024. Submitting a cessation notice provides an option, rather than a clear intention, to sign with other processors. Farmers have been clear in their expectations of Synlait to reduce its debt levels while paying a competitive milk price and strong advance rates.
The company’s North Island farmer suppliers will receive a one-off $0.05c/kg MS payment. Synlait will stop processing raw milk at its Pokeno plant in Waikato. It will retain all farmer suppliers in the North Island, but their milk will be processed by Open Country Dairy.
