If you have been pondering upon “what has happened to Synlait” you won’t be alone. Back in February they announced that they were “emerging from Covid’s long shadow” but since then, as the graph below shows, there has been a downhill slide.
Source: NZX Synlait.
There was some better news this week with Synlait’s application to keep being allowed to export its a2 infant milk powder into China. The announcement which will allow it to manufacture from the Canterbury Dunsandel plant and export this product for the China market until September 2027 is no doubt responsible for the recent lift, be it from a very low base.
Synlait’s lack of recent profitability and associated weak share price can be put down to a number of issues, which individually may not have harmed the firm but collectively they have snowballed to create a substantial headwind. The problems likely go back to when the a2 Milk Company, who own a minority stake in Synlait of approaching 20%, decided to set up their own processing plant with the purchasing of the Mataura Valley Milk plant in Southland, presumably reducing the a2 volumes going through the Dunsandel plant. a2 Milk were seen as a cornerstone consumer/partner of Synlait.
Also, at around this time Synlait went into expansionary mode. Additional processing capacity was developed in Auckland (2017), the Pokeno plant in Northern Waikato developed (2018/19), Talbot’s cheese making plant in Temuka bought (2019) as was Dairyworks (2020) in Christchurch.
At the same time Fonterra finally realised the value of a2 and Synlait no longer had the field, or more importantly market to itself, with Fonterra having the right to supply a2 Milk outside of China and Australasia. And of course, everything was compounded by Covid. a2 exports into China, which relied on the informal Daigou channels, was affected to greater levels than other exporters with personal travel more greatly constrained than formal routes and a slower to return.
The expansions undertaken by Synlait, which have been reported as costing around $555 million, coinciding with the Covid induced downturn produced a perfect storm for Synlait. At the same time there were changes in senior management which may have also resulted in their collective eyes not being on the ball.
Leap forward to the present and Synlait now have the Temuka cheese making plant and Dairyworks (also an adding value processor) on the market with an expected $150 mln to be recouped. In some respects, a similar story to Fonterra, aggressive expansionary mode, bad timing or management and then a retraction. Hopefully the news Synlait's plant can export its a2 component into China and by more conventional means will put Synlait back on the road to profitability as the company has always shown itself to be a leader in multiple fields in the way it operates.
As with most things in New Zealand agriculture the returning of China to the table will be a major component of Synlait’s future success. At the end of April in its 2023 full year forecasts Synlait only predicted a -$5 to a +$5m profit well down on its $38m profit of year ending June 2022, but looks positively rosy compared to the -$28m loss the previous year. In September last year Synlait announced that it was pursuing opportunities in plant based products, it expected to start distributing the plant-based product in Southeast Asia from near the end of 2022 and to Australia and New Zealand by the end of the 2023 calendar year. To date not much further has been heard.
The latest GDT results this week unfortunately did nothing to show that China is beginning to lift its purchasing. Overall, the latest result was -0.9% down led by WMP.
- Butter index up 0.5%, average price US$5,088/MT
- Cheddar index up 7.4%, average price US$4,668/MT
- SMP index unchanged, average price US$2,755/M
- WMP index down 3.0%, average price US$3,173/MT
That cheese is in such strong positive territory shows that the fast food trade is flourishing, at least in some parts of the world. There is a theory that in times of recession the fast food industry does not suffer the same as some other retail outlets as consumers forgo luxuries but consider burgers and pizzas etc as staples and they continue to trade well when other hospitality outlets fail.
The Westpac dairy report goes into some detail around the demand for cheese and ponders upon the opportunity for processors to switch WMP production thereby increasing returns for WMP (less supply) but eventually lowering cheese production (oversupply).
Westpac appear to have given up on waiting for China also, and have reduced their forecast for the farmgate milk price for the 2023/24 season to $8.90. Still considerably above Fonterra’s mid-range however.
Despite China’s keeping a tight rein on spending of food products, within China there is still plenty of evidence that Gen-Z at least see dairy products as an essential component of their diet. Since the COVID-19 pandemic, Chinese consumers have shown higher health awareness and have consumed more dairy products to enhance their immunity. Chinese adults have been recommended to consume 500 grams of milk or equivalent dairy products daily, according to the latest Chinese Dietary Guidelines. This ‘healthy’ trend is also spilling over into the grass fed beef supply with perceptions moving away from it being an inferior product to becoming to be seen as more healthy. Hopefully this attitude is also benefiting sheep meat.
45 Comments
. In September last year Synlait announced that it was pursuing opportunities in plant based products, it expected to start distributing the plant-based product in Southeast Asia
But expensive pant-based dairy products are failing miserably in SEA. Soy milk has reasonably strong market share but also has established local mnfers and brands. Vietnam has a big alternative meats industry but once again these are local mnfers and brands. What does Synlait bring to the table?
Yeah it's kinda like when Starbucks tried to bring European Cafe Culture to Europe.
Foreign nut milk brands sit at a price premium 150+% above UHT milk in SEA markets. And soy milk is seen as a 2nd-best option to dairy for nutritional benefits (for right or wrong).
Going woke (plant based) is a death knell.
Humans are humans and will gravitate to instinct.
Where was 'climate change' woke during COVID? Plastic waste dumped everywhere.
Plant based 'alternatives' just cost MORE.
Spending power is dropping.
Do what you can do and do it efficiently and respectfully (of all cultures and living things).
Quit being woke.
Agree 100% sit23. Natural fat blamed my entire life when it turned out to be sugar (carbs) was the culprit.
I went from struggling to walk past the fridge at the end of covid to being able to go days without even feeling hungry (drinking water only) - all the items you mention are good plus some intermittent fasting turned my body around.
> Meat is good for you.
You gotta be joking right? Just about every day there is a new study showing meat is bad for you.
https://www.theguardian.com/food/2021/mar/02/eating-meat-raises-risk-of…
https://www.wcrf.org/diet-activity-and-cancer/risk-factors/meat-fish-da…
https://www.cancercouncil.com.au/1in3cancers/lifestyle-choices-and-canc…
https://www.who.int/news-room/questions-and-answers/item/cancer-carcino…
The remainder of your points i agree with, so long as those dairy fats are in good moderation.
wow, you've really changed my mind with your strong reasoning power here.
For those allergic to the left leaning media, a quote straight from the journal article
On average, participants who reported consuming meat regularly (three or more times per week) had more adverse health behaviours and characteristics than participants who consumed meat less regularly, and most of the positive associations observed for meat consumption and health risks were substantially attenuated after adjustment for body mass index (BMI).
"health risks were substantially attenuated after adjustment for BMI"
This was a self reported observational association study and they are trying to tell you the health risks might just be "healthy user bias" or people who care about their health. There were also some lower health risks for meat eaters as well.
Under the discussion topic "Role of BMI": "The associations of meat with disease risk reported here which remain after adjustment for BMI might still be due to higher adiposity... ". The results appear to have the authors convinced they might be missing a confound that could explain the difference in health outcomes.
Synlait's greatest weakness was that they were manufacturing infant formula for a2 Milk without the manufactured volumes being irrevocably locked in for purchase by a2Milk. Logic would now be for a2 Milk to buy out Synlait. In contrast Mataura is a liability rather than an asset for a2 Milk.
The daigou channel was fundamental to the growth of a2 Milk via English label brand and it underpinned the spectacular overall growth of a2 Milk. But those days are unlikely to return.
Synlait's plant-based endeavours are high risk.
KeithW
The Vietnamese seem very nutritionally aware and would probably make it home if they wanted to drink it.
I am assuming that more consumerist markets in SEA where you might want to virtue signal like a westerner. I can't see the market for any area that experienced any kind of poverty in recent generations not figuring out its better and cheaper to just eat oats.
Even if there was consumer demand what's the case?
The Vietnamese seem very nutritionally aware and would probably make it home if they wanted to drink it.
You mean oat milk? First, it would have to be priced appropriately. 1 liter of Vinamilk's UHT milk is approx NZD2. You need to do proper research into dietary repertoire and understand what the drivers and barriers are. Dumping oat milk into the market based on a 'reckon they might like it' is not a strategy. Spring Sheep Milk has made similar mistakes in Asia markets.
Yes, oat milk. I assume we would need to import the ingredient to make anything else here.
I would have though possibly the Philippines (not that I have been there but I perceive them to have a more processed food diet) and maybe a small a small proportion urban Thailand might be consumerist enough to be interested but I agree anywhere in SEA seems like a very poor market.
You can make the milk at home with a blender for almost nothing, unless you want to make a latte with it. I just don't get it. There's not going to be any NZ branding if you sell it if though the local coffee chains.
It's just strained oats and water blended together. You get 3 to 4 times the volume of milk as the oats you put in. The extra stuff you can put in so you can market it as having health benefits beyond soluble fibre will have to be imported but transport costs will be trivial.
Otis process this further I guess so they can mix oil and other chemicals in there so you can steam it to make coffee and it's sweeter. I guess, they are wanting to this kind of processing in these new factories.
Being able to sell standard oat milk for more than price of normal milk will not last.
No, they don't but they do go into bags of various sizes rather well that can be shipped to the tropics...
The shipping costs will also be a fraction of shipping the finished "milk".
It's like how china imports logs rather than finished wood but the shipping costs are cheaper instead of more.
I think once competition kicks in everyone starts making oat milk and the price will be driven well below the price of actual milk and then it will be profitable to have a North and South Island factory to save transport costs. (Or, if we have a backlash against veganism we might realise that milk can be part of a balanced diet and is not a toxic compound and oat milk goes back to being a soy milk competitor.)
That why I made the comment asking if I was missing something.
Then there's room for Oat milk in a balanced diet as well as cows milk (sheep and goat etc). People like to try different things , they aren't just buying oat milk for health reasons. My wife is a heavy milk and meat products eater , but she came home the other day and said she had tried oat milk at a cafe and liked it . We still got cows milk in the fridge.
Oat milk is completely nutritionally redundant if you are eating wholegrains. They do process it further with additives so they can claim some extra health benefits for marketing and I guess we will find out if it actually delivers in a decade or so. For example, do we really want to fortify something with calcium (just because milk has it) without any K2?
As oat milk is a ultra processed food with a non fixed list of ingredients so it will get more unhealthy overtime as companies find new recipes to make it taste better and get you drink more. You can add enzymes to it to produce maltose (high GI sugar) so it tastes sweeter but pretend its still healthy.
>non fixed list of ingrediants
Vitasoy Oat Milk: Ingredients: Filtered water, whole oats (min.10%), sunflower oil, oat flour, gum arabic, minerals (calcium carbonate, calcium phosphate), acidity regulator (potassium phosphate), natural flavour, sea salt.
Do you mean it varies from brand to brand, where as dairy milk is a bit more homogeneous as it only varies by breed and diet of cow? Well and species of mammal too if we are going to talk about all dairy milks. Goat milk quite common source of dairy in a few countries.
> Oat milk is completely nutritionally redundant
But it sure gives a cup o tea a nice malty taste.
our oats are expensive to start with, and then we would have to ship it. We might have a better climate for growing oats than the tropics, but plenty of places have even better grain growing climates.
Our oat growers can't even compete in our domestic market. It's way cheaper to purchase imported oats than the local stuff.
The daigou channel was fundamental to the growth of a2 Milk via English label brand and it underpinned the spectacular overall growth of a2 Milk. But those days are unlikely to return.
I'm sure you have strong understanding of the potential risks of daigou as a long-term route to market strategy. Laziness in terms of a long-commitment to business building.
The a2 strategy (ATM and SML) always had two parallel arms in English language and Chinese language product. Initially the English language product (via daigou) grew much quicker than the Chinese language product. That was simply the reality of the relative challenges of developing the two very different supply chains.
KeithW
Johnfromthetron
All dairy products going to China must come from certified operating plants. There are specials requirements for infant formula. The Chinese do not like small scale infant formula brands. Any sale of Fonterra's infant formula in China is relatively small scale (they do not feature at all on any of the market share data that I see) but I do not know if this has become an issue for them. I doubt whether Fonterra has a long term future with infant formula in China.
KeithW
Many of the smaller goat milking farms in the upper Waikato closed , when the cost of complying to the infant formula plants need to certify, came close to a million per farm. Plus the added compliance work that went down to what % of which feed the goats were eating. And that was 10 -15 years ago.
Very basically put but oh so true.
Having said that I clearly remember a large number of professional commentators singing the praises of the likes of Synlait and how they were crushing the co-op.
I understand there was a loss of key middle management around the time of a couple of upper management who had a short lived tenure. Sometimes it only takes one person with the wrong culture to really stuff things.
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