What would Free Trade Agreement mean for NZX dairy stocks?

Highlights

• Of late, NZ and the UK have agreed to an all-inclusive FTA (Free Trade Agreement).
• FTA would enable several dairy products to become tariff-free over a period of time.
• The a2 Milk acknowledges reports related to a prospective class action against it, which is actually being probed by Shine Lawyers.

As per the latest update, both NZ and the UK have agreed to an all-inclusive FTA (Free Trade Agreement), which would immediately eliminate NZ$14.1 million of tariffs on a yearly basis.

The dairy sector would receive commercially important access to milk produces like butter and cheese. Apart from these, several other dairy products would become tariff-free over a period of time.

On the given background, let’s check the main headlines from 3 NZX-listed dairy stocks.

        Image source: © 2021 Kalkine Media New Zealand Ltd, data source- EODHD/Others

Fonterra Co-operative Group Limited (NZX:FCG)

NZ’s Co-operative, involved with dairy production Fonterra Co-operative Group Limited, has around 10K farmers who work in partnership.

For September 2021, the NZ milk production lessened by 4.8% on litres basis in August on pcp. The NZ milk production for the full year up to August was 2.4% lesser than pcp. NZ and EU’s monthly exports dropped, while AU and US exports continued to increase.

On the FTA front, Fonterra’s CEO Miles Hurrell summed it up as a fantastic result for NZ. He added that the UK was the second-biggest importer of dairy by value, with consumers in the high-value division who are keen to pay for NZ provenance, their sustainability credentials and innovation.

On 21 October, at the end of the trading session, Fonterra was at NZ$3.17, up by 1.28%.

Also read; Did Fonterra Group (NZX:FCG) pass with flying colours?

The a2 Milk Company Limited (NZX:ATM; ASX:A2M)

Dairy nutritional entity, The a2 Milk Company Limited, is exclusively centred on milk products containing A2 beat-casein protein type.

On 21 October, the Company notified the market that it was informed of media reporting related to a prospective class action against it, which is actually being probed by Shine Lawyers.  The Company is not aware of any legal proceedings filed by lawyers.

Also, The a2 Milk thinks that it has always complied with its disclosures agreements, refutes any liability and is planning to defend any proceedings against it.

The a2 Milk last traded on the NZX on 21 October at NZ$7.48, decreasing by 2.60%.

Do read; Who is the major shareholder of The a2 Milk?

Synlait Milk Limited (NZX:SML; ASX:SM1)

A manufacturer of nutritional milk powders and ingredients, Synlait Milk Limited is functional since 2000.

Earlier this month, Synlait notified the market that it had formally unveiled its first consumer foods product ‘Synlait Swappa Bottle’. It is a 1.5-litre stainless steel bottle with homogenised milk, especially sourced from its best farm.

Hamish Reid, Synlait’s Director Sustainability & Brand, stated that the newly launched (Synlait Swappa Bottle) was an initiative taken towards eradicating plastic waste from the region.

Synlait closed the market session on 21 October at NZ$3.8, decreasing by 0.52%.

Related read; The bullwhip effect that led to Synlait Milk’s (NZX:SML) losses

Bottom Line

NZ’s Trade Minister Damien O’Connor stated that it was important that the deal offered a thorough and commercially important access for NZ’s exporters and companies, particularly the dairy and meat producers who are the pillar of the nation’s economy. This agreement would be able to attain it.