Synlait recruits more dairy farmers

Synlait Milk [NZX: SML], the South Island-based dairy processor, has added 28 milk suppliers in Canterbury, boosting the total to 201 to meet forecast growth in its value-added nutritional product business for the 2016/17 season following soaring infant formula sales from one of its key customers, A2 Milk.

Chief executive John Penno said a combination of increased customer demand and more production capacity with a new large-scale spray dryer has created the demand for new supply from Canterbury farmers.

He said Synlait had such a positive response that it hasn't been able to accept supply from everyone interested and it has now set up a waiting list.

"The calibre of new suppliers is impressive and complements our existing supply network," he said.

Since it began production, Synlait has had only eight suppliers leave, four of which were the result of a change in farm ownership, he said.

Synlait last month cut its forecast farmgate milk price for this season to $4.20 per kilogram of milk solids from $5/kgMS, although it has also forecast a boost in underlying net profit for the March half year significantly above the $419,000 achieved a year ago. In comparison, its larger rival Fonterra Cooperative Group has forecast a farmgate milk price of $3.90/kgMS.

Synlait expects to make around $6 million in premium payments this season, with more than half of its suppliers receiving a premium above the base milk price.

It doesn't reveal what premiums it pays apart from a range of 6 cents to 12 cents per kilogram for its best practice Lead in Pride dairy programme.

Brent and Sharon Trafford, who operate a 750 herd farm northwest of Ashburton in Winchmore, said they consider the A2 Milk programme they've now joined to be a unique opportunity.

"The programme really appealed to us. We have already met the customer and that level of contact, along with the premium we will be getting paid for our milk, is something we feel really excited about, particularly in these challenging times," Brent Trafford said.

Penno said Synlait will continue reviewing its ability to take more milk in the future and he's aware of the pressure low international commodity prices are placing on dairy farmers at the moment.

"It's undoubtedly a tough time for anyone operating a dairy farm. We're standing by our suppliers and helping where we can."

Synlait shares slipped 0.7% to $2.80 in early trading today. As of yesterday, the shares had declined 11% this year. The stock is rated an average 'hold' according to two analyst recommendations compiled by Reuters.

(BusinessDesk)