Dairy and Farm: A Glance at Fonterra and Synlait Milk

  • July 24, 2020 03:48 PM NZST
  • Team Kalkine
Dairy and Farm: A Glance at Fonterra and Synlait Milk

Summary

  • Dairy farming is one of the biggest businesses in New Zealand, with the dairy industry being the country’s top export earner.
  • During the year ended March 2020, exports from the dairy industry surpassed travel industry exports, a first in almost five years.
  • Global dairy prices have rebounded as demand from China, and other Asian economies surged.
  • Multinational dairy company, Fonterra revised the price range of its 2019/20 and 2020/21 forecast Farmgate Milk driven by improved demand.
  • Synlait Milk is now a Certified B Corporation™, indicating that it meets the standards for environmental performance & public clarity, among others.

Dairy farming is a key business in New Zealand with the industry contributing significantly to the export revenues. According to StatsNZ, dairy products generated export revenues of NZ$16.2 billion for the year ended 31 March 2020, the biggest export earner for the Kiwis. Interestingly, the number of cows and the number of people living in the country are almost the same. The average number of cows on a farm is more than 400, with some having over 1,500 cows.

As per a report published by the New Zealand government, in 2019, more than 40,000 people were employed in the dairy industry. Out of these 40,000 people, 35,000 people are working on farms.

While many industries in New Zealand experienced pressure on their business during the COVID-19 pandemic, it was the dairy industry which held up the total exports during the period and surpassed travel exports in revenue for the first time in the last five years.

The dairy industry has witnessed an improvement in exports led by strong demand from Asian markets, particularly China, as the economies recover from the pandemic.

In this backdrop, let us look at two such NZX-listed companies from the dairy industry, which are under discussion and find out the reasons for the same.

Fonterra Co-operative Group Limited (NZX:FCG)

Fonterra Co-operative Group Limited is a global dairy business owned by over 13k dairy farmers in New Zealand. It is the leading exporter of dairy goods in the world.

Fonterra Co-operative Group came was under discussion after an announcement last week related to the revised price range of its 2019/20 and 2020/21 forecast Farmgate Milk.

The 2019/20 forecast Farmgate Milk Price range, which was earlier in the range of NZ$7.10 to NZ$7.30 per kgMS, is now in between NZ$7.10 to NZ$7.20 per kgMS. The mid-point off which farmers are paid got reduced from NZ$ 7.20 per kgMS to NZ$7.15 per kgMS.

The 2020/21 forecast Farmgate Milk Price range, which was earlier in the range of NZ$5.40 to NZ$6.90 per kgMS is now in between NZ$5.90 to NZ$6.90 per kgMS. The mid-point off which farmers are paid has improved from NZ$6.40 per kgMS to NZ$6.15 per kgMS.

According to FCG’s Chairperson Mr John Monaghan, the lessening of the 2019/20 milk price toward the lower end of the earlier range was due to the strengthening of the NZ$ and US$ over the last 2 months.

The Co-operative will declare the final 2019/20 Farmgate Milk Price as a component of its Yearly Result during September 2020.

Mr Monaghan commenting on the 2020/21 forecast Farmgate Milk Price range stated that the lift to the bottom end of the range was due to improved market conditions in China. Post the initial jolt from the COVID-19 crisis, the dairy intake in China is regaining with additional people spending on food. There was a growth in marketing movement as they look to lift up on the sales losses experienced during the lockdown.

In the US and EU, the support measures of the government are holding up the milk production plus the dairy commodity prices despite the disruption from the COVID-19 pandemic.

Interesting Read: Fonterra Increases Farmgate Milk Prices as Demand from China Rises

Stock Information:

On 24 July 2020, FCG stock closed NZ$3.860, down 0.52%. The Company has a market cap of NZ$6.22 billion.

Synlait Milk Limited (NZX:SML)

Synlait Milk Limited comprises of skilled and sustainable farming methods with state-of-the-art production practices to manufacture a variety of nutritional milk items that give actual benefits for human health & wellbeing.

On 29 June 2020, the Company released an announcement where it highlighted its strategic decision to evaluate people and planet to the same level of profit recognised. The Company is currently a Certified B Corporation™ (B Corp™).

B Corp™ is an international group of for-profit leaders that guarantees to use the business as a force for good. With this certification, the Company has joined over 3,300 B Corp™ businesses that operate in 150 countries across 71 nations who have commenced strict assessment procedure to turn out to be a Certified B Corporations™. The evaluation estimates the constant impact of the business on its workers, community and suppliers, clients, governance, & the environment.

In this assessment, there was a group of over 30 Synlait employees who were involved to accomplish the comprehensive B Impact AssessmentTM, which took more than a year time. Further, the Company’s accreditation will be evaluated every 3 years. These assessments would be used to make any positive changes within the Company.

Stock Information:

On 24 July 2020, SML stock closed at NZ$7.180, in line with the previous close. The Company has a market cap of NZ$1.29 billion.

 


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