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April 14, 2005

NEW ZEALAND: Synlait to cut loose from Fonterra as independent exporter

One of New Zealand’s biggest dairy farming operations, Synlait Investments Ltd, is to stop supplying Fonterra and become an independent exporter from 2007/2008, it said today (Thursday).

One of New Zealand’s biggest dairy farming operations, Synlait Investments Ltd, is to stop supplying Fonterra and become an independent exporter from 2007/2008, it said today (Thursday).

Synlait chairman Dr John Penno, along with directors Ben Dingle, Juliet Maclean and Ruth Richardson, advised Synlait’s current milk processor, Fonterra Co-operative Group Ltd, and the minister of agriculture, Jim Sutton, of the company’s plans this morning.

Smaller, independent dairy exporters such as Synlait were envisaged by the Government’s Dairy Industry Restructuring Act 2001 which established Fonterra as the dominant player in the industry.

Dr Penno said Synlait, which currently produces more than 40m litres of milk a year from 8,500 cows on 2,800 hectares of prime Canterbury land, now had the critical mass to begin the next stage of its development which would see it become New Zealand’s first genuine cow-to-customer dairy export company, focussed on exporting ingredients to the world’s leading food manufacturers, particularly in the functional foods category, with which it had already established key relationships.

Dr Penno said the plans would be funded with existing resources and by sourcing equity from selected outside investors.

“From our base, we plan to expand milk production to 100 million litres a year, or approximately one percent of New Zealand’s total milk production, and to build a state-of-the-art processing facility central to our farming operations. At least 100 new jobs are expected to be created as these plans unfold, mainly in mid-Canterbury but also in offshore marketing.”

Dr Penno said Synlait aspired to have the country’s best on-farm management expertise to give it a significant cost advantage over other farming operations. But Dr Penno said the company’s plans were driven by the international marketing gains that its unique cow-to-customer model would deliver rather than cost savings alone.

“By controlling every element of the value chain, Synlait will be able to breed and manage our herds to produce the milk characteristics sought by individual customers. We will use that milk to deliver the specialist ingredients demanded by those individual customers to add value to their products.”

As a smaller player than the industry giants, Synlait would also be able to deliver smaller specialist runs for specific customer purposes than the global industry giants, Dr Penno said.

“Just as significantly, our unique cow-to-customer model means we will be able to trace and certify the source of our products back through the production and supply process for customers that request that facility. We are unaware of any dairy company in the world that will be able to deliver such sophisticated traceability systems as we have planned,” he said.

Dr Penno said that sourcing equity from selected outside investors would also be a major step for a New Zealand dairy exporter. He said the raising of capital may or may not be by an offer of securities to the public. He emphasised that no money was currently being sought for Synlait’s processing and marketing arm and no applications for securities would be accepted or money received unless the subscriber has received an investment statement, assuming an offer to the public is subsequently made.

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