Synlait’s dilemma: 50 farmers want to quit
NZX-listed company won’t comment on issue, citing commercial sensitivity
At least 50 of Synlait’s farmers have given notice to take their milk elsewhere, Business Desk understands.
But the New Zealand stock exchange-listed company, facing material uncertainty with high debt levels, won’t comment, citing commercial sensitivity.
It has a four-month extension until July on its $130 million debt facility. On Tuesday, it said it would be undertaking a strategic review of its North Island assets after reporting a $96.2m loss for the first half-year to January 31.
It is the third-largest processor in New Zealand behind Fonterra and Open Country. In 2023, it had 63 farmer suppliers in the North Island and 220 in the south.
In its half-year report, the company noted that as its balance sheet had come under pressure, cessation notices from suppliers had increased compared to previous years.
Synlait chief executive officer Grant Watson called the result extremely disappointing but said it had a supportive major shareholder and bankers and a clear competitive advantage in advanced nutrition and food service. Farmers leaving
Sources have told Business Desk that at least 50 farmers have put in their notice.
However, Synlait wouldn’t comment, saying ceases were considered commercially sensitive, “so not something we would publicly discuss to that level of detail”.
It did, however, point to the fact it had raised its forecast base milk price to $7.80/kgMS (kilogram milk solid) — in line with Fonterra’s current midpoint — and a forecast average milk price of $8.09kgMS with Synlait’s incentives included.
The company reiterated comments made in its half-year report, saying retention of its “highquality milk supply” remained a critical priority.
“As Synlait’s balance sheet has come under continued pressure, cessation notices from our farmer suppliers have increased compared to previous years. The cessation notice period is two years, which means our current financial performance is not impacted.
“We are confident, given the progression of the reset plan, that there is limited material risk to our future financial performance.”
Who wants to go?
Fonterra’s Farm Source group director Anne Douglas said the cooperative had a “strong pipeline” of Synlait suppliers wanting to return to Fonterra and it was working with them.
New Zealand’s state-owned farmer, Pa¯ mu, is one of its suppliers.
Pa¯ mu said in a statement that like other suppliers, it had received regular communications from Synlait with updates on its performance and outlook.
“We are pleased to see the forecast 2023/24 milk price increase to $7.80/kgMS. Pa¯ mu is firmly focused on profitability and efficiency.”
No milk, no product
Forsyth Barr analyst Matt Montgomerie said farmer suppliers were the company's lifeblood, but suppliers exiting the listed dairy manufacturer was a logical outcome.
Montgomerie said Synlait’s advance payments were not as attractive as Fonterra's at present, and Synlait was, therefore, less attractive from a cashflow point of view.
“Potentially, for Synlait to continue to get supply, they’re going to have to pay up for that.”
Market analysts Macquarie mentioned the increase in cessation notices from Synlait suppliers in its research report after the half-year
result under a heading, “the not so good”.
It said the two-year cessation notices posed a challenge for the company in the 2026 and 2027 financial years and “may require additional milk premiums to retain the milk pool”.
Bell Potter said the dairy manufacturer was exposed to supply risk through competition for milk among New Zealand processors and its ability to pay an above-market premium to secure new farmer suppliers.
There was also an on-farm profitability risk and risk in the ability of farmers to produce milk according to the firm’s volume requirements.
Po¯ keno struggles
Synlait has tried to increase the number of farmer suppliers for its Pō keno plant, saying it needed more Waikato milk and urging farmers to sign up.
However, the $280m state-of-theart plant, which first processed milk in 2019, has been underutilised. On Tuesday, Synlait recognised a $50.3m impairment “ultimately driven by under utilisation of its North Island manufacturing facilities”.
It has now committed to reviewing its North Island operations, including potentially selling Pōkeno and may also need to raise equity.
Macquarie said North Island production volumes had been declining in recent years, and non-dairy volumes it was manufacturing for Abbott made “production phasing challenging for ingredient production and utilisation”.
Macquarie said Abbott volumes at Pō keno had declined since the beginning of 2024, from about 6500 metric tonnes to about 4000 metric tonnes.
Upgraded, but where is the volume?
The plant is fairly new and its first milk was processed in September 2019.
Montgomerie said Synlait spent about $90m refitting the site for Abbott.
Montgomerie said it was hard to see Abbott pushing more product through Pō keno when it had so many plants to choose from.
The company said it had not held formal talks with Abbott about buying the plant outright, but Forsyth Barr and Macquarie said the healthcare giant seemed to be the natural buyer.
The work to customise the Pō keno plant was announced in 2020, with production for Abbott starting in 2023.
In 2021, Synlait said that after the modifications to Pōkeno, it is expected to increase nutritionally packaged consumer volumes by 35 per cent to 40 per cent in its first full year of production in the 2024 financial year.
For the six months to January 31, Synlait said sales volumes for advanced nutrition were 15,874 metric tonnes, compared to 17,415 in the same period in 2023.
Pōkeno was loss-making, Synlait said on Tuesday.