Source: Radio New Zealand
A Synlait milk truck. Synlait/supplied
Paying dairy farmers a premium for their white gold could come at a cost to Synlait Milk, according to an agribusiness expert.
The Dunsandel-based processor and exporter increased its farmgate milk price this week to up to $9.90 per kilogram of milk solids for the financial year, 20 cents higher than competitor Fonterra’s new current season midpoint.
But it also released what bosses labelled a “frustratingly disappointing” half-year financial result, due to manufacturing challenges and inventory kerfuffles between raw and powdered milk through 2025.
It reported a $80.6 million loss in the six months to late January, while debts soared to $472.1m.
Lincoln University senior lecturer in agribusiness Dr Nic Lees said the company was under significant financial stress, which could affect farmer confidence.
“Farmers do have options. I suspect this result’s not going to add confidence amongst farmers that there isn’t a financial risk for them supplying Synlait.”
Lees said the company’s sales were no longer covering the direct cost of making and processing its products. He said paying farmers the higher milk price added to the pressure, increasing raw material costs, but he could understand the strategy.
“They need to be able to be offering their suppliers something more than what they can get from supplying Fonterra or Open Country,” he said. “They are having to pay a risk premium to their suppliers to try and hold those.”
- Do you supply Synlait? Let us know your thoughts monique.steele@rnz.co.nz
He said Synlait faced fixed retail pricing in “onerous” customer contracts, making it more vulnerable to fluctuating global prices – which differed to how Fonterra could pass on costs.
“In some ways from Fonterra’s point of view, the higher milk price is beneficial to their farmers. Whereas from Synlait’s perspective, higher milk price means higher costs for their raw materials, which potentially is difficult to directly pass on to their customers.”
Lees said Synlait was lucky to have major long-term shareholders like Bright Dairy of China that had significant financial scale, so the losses would not threaten the overall business.
But he said the results showed the challenge of going down the “value-add pathway” into retail, like into its consumer brand Dairyworks.
It came as Fonterra divested its consumer brands business under Mainland Group, for dairy products including ice creams and cheese.
This week, Fonterra announced its net profit for the six months ended January rose 3 percent on last year to $750m.
Synlait milk on the production line. Supplied/ Synlait
Poor 2025 results don’t reflect future – company
When publishing the results to the New Zealand Exchange, Synlait Milk chief executive Richard Wyeth and chairman George Adams told investors the financial result did not define the company’s future.
“Many of you, like us, will find today’s numbers frustratingly disappointing – we are all hungry for positive financial performance,” the joint statement read.
“The result reflects a period where Synlait faced multiple headwinds with little choice as to how to deal with them.”
Synlait’s “realistic” roadmap to recovery sought to position it for future growth, grow high-margin products from existing assets and accelerate growth and future growth opportunities.
Last year, the dairy company sold its North Island operations, including its Pōkeno site, for $307m to help the balance sheet.
It said on Monday the sale was on track to be completed from 1 April.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
