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Guy Trafford questions Synlait's decision to further expand in the North Island

Guy Trafford questions Synlait's decision to further expand in the North Island

By Guy Trafford

You would think somebody has found a whole lot of extra land in the Waikato.

On the back of Open Country getting close to opening their second Waikato drying plant, Waharoa and now Horotiu, the new sheep dairy plant in Cambridge, now Synlait are planning to open a new drying plant at Pokeno.

Pokeno is technically Counties but Waikato would have to be considered as where most of the planned milk will come from.

Based at Dunsandel in central Canterbury Synlait has a great record of getting lots of things right from the farm level with their “Lead with Pride” programme to developing niche markets capitalising on the unique attributes of New Zealand milk  and of course providing the milk and processing for the successful A2 milk programme.

This expansion of plants in the Counties-Waikato region is providing plenty of choice for dairy farmers and two potential players now which don’t require suppliers to purchase ‘wet’ shares to supply, but one has to wonder whether, in the case of Synlait, it is a step too far.

Are they trying to cut Fonterra off at the pass after Fonterra announced they were beginning discussions with farmers to supply them with A2 milk? 

Currently most of the A2 milk produced in New Zealand is coming through Synlait out of its Dunsandel plant from approximately 60 local farms.

Farmers receive about a 20 cent premium for their product.

If setting up further A2 milk production in the North Island is the aim and going into a new region to do it, it’s my guess that it will require more than that to get the swing required to get a viable amount committed.

If A2 is not the aim then I’m left wondering what the benefits are - especially given Synlait probably still have potential to expand in the South Island.

The announcement certainly doesn’t appear to have affected shareholder confidence with the current share price rocketing from $7 at the start of February up to $7.84 at the close on the 28th of February.

This is not Synlait’s first step into the North Island with already a canning plant purchased in Auckland last year as well as a research and development centre based at Palmerston North.

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How many dairy factories does the country need .....going down the same path as the meat industry with too much production capacity....

Check the effective ownership of Synlait: it is majority overseas owned IIRC. So metrics like ROI and divvies may not be as relevant as much longer-term strategies.

Will be interesting to see how quickly Fonterra's collection falls below the DIRA threshold - it already is in the South Island - though governments do keep changing the goal posts on that criteria.

In my neck of the woods Fonterra farmers are saying the open entry clause of DIRA has to go. It would be interesting to know how many farmers would switch from Fonterra if they knew there was no complusion on Fonterra to take them back. Fonterra is required to have surplus processing capacity in order to be able to pick up the slack should a processor fall over because of open entry in DIRA. As peteypies says - we are going down the path of the meat industry which is the way we were headed before Fonterra was formed. The milk pie is not getting any bigger - all existing milk processors have agreed not to take on any new conversions in the Waikato so that has effectively stopped that option of new supply. So it will be everyone taking a smaller share of an ever decreasing pie.
We live in interesting times.

Will it get to a stage where processors in these competitive regions start falling over each other to sign up new suppliers, similar to what power companies and banks do.

ie: Supply us for 3 seasons and we'll give you a side-by-side. 5 years, here's a Hilux.

Something is going down at Fonterra,

Alan Emerson

For those who keep calling me about no article in Farmers Weekly this week. Fonterra didn't like what I was saying and has been granted an interim injunction. The truth will come out.

While they spend money partnering with an 18 month old German startup

On RNZ this morning (can't find the link) they interviewed Judith Swales - Chief Operating Officer Transformation about this purchase and other items on her radar, using a large number of buzzwords like disruption she said her team is structured differently to the rest of the company where they don't have budget limits and or KPI's on these investments. Incredible really

Days to the General Election: 28
See Party Policies here. Party Lists here.