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.
True reform should give greater opportunity to new players in the market to create genuine competitive tension for farmers' milk, it says.
Feds Dairy chairperson Willy Leferink was responding to the draft Raw Milk Regulations released by MAF yesterday which up the amount Fonterra must supply to independent processors by 200 million litres a year, but includes a three-season limit.
Processors who have already had Fonterra milk have had plenty of time to set up their own supply chain and shouldn't be eligible for that milk, Leferink told Dairy News.
"The draft proposal would still allow them to take the full amount until 2016. New processors won't handle be able to get their hands on it because Fonterra milk will be oversubscribed."
Leferink says Federated Farmers supports the proposed time limit but thinks it should kick in earlier for those who are already receiving it.
"Putting a time limit on independent processors, regardless of whether they collect milk from farmers or not, will make them build a milk supply," he says in a statement.
"While 5% of farmers may think they supply Fonterra, the reality is that their milk gets sent to independent processors. These processors then compete with Fonterra Cooperative Group in the international market.
"The price of raw milk in New Zealand is actually regulated under the Dairy Industry Restructuring Act or DIRA as we know it.
"The Ministry of Agriculture and Forestry's (MAF) latest discussion document lays out some changes involving the DIRA, as well as the Raw Milk Regulations. This covers Fonterra's obligation to supply raw milk to its competitors at a regulated price.
"The Ministry has been grappling with these regulations for a number of years, especially given the recent surge in the number of independent processors. All of whom seem to want their 50 million litres of regulated raw milk from Fonterra.
"Because there is a regulatory cap on the total volume of milk available, the milk pail is starting to empty. That said, Government still seems keen to provide new start ups with enough milk to start production rolling.
"If Government wants new export entrants, then it needs to turn off the tap to those receiving milk at the regulated price.
"Farmers didn't create Fonterra to kill it off by a thousand competitive cuts."
