Synlait Milk offers suppliers a chance to earn significant premiums in US infant formula deal

Thursday 18th June 2015

Synlait Milk, the Canterbury-based dairy processor, has announced a new partnership with US baby products manufacturer, Munchkin Inc, that could offer its 161 farmer suppliers a chance to earn well above the normal payout.

Munchkin, a privately-held Californian company known for designing, manufacturing, and distributing innovative infant and toddler products, is planning to launch a new Grass Fed branded retail-ready infant formula into the United States and China that will be manufactured exclusively by Synlait.

Synlait managing director John Penno said the partnership would help the dairy processor reduce its exposure to China.

“We are cognisant of ensuring our infant formula business does not become overly reliant on the China market, and so Munchkin, with its focus on the United States market, is a potentially important addition to our growing portfolio of retail-ready infant formula customers,” he said in a statement.

The raw milk used to manufacture the unique infant formula is subject to a new Grass Fed standard which requires cows to be exclusively grazed on a pasture and crop-based diet, with no grain feeding or feed not grown in New Zealand. Farmers will be independently audited to ensure they stick to the standard.

Munchkin chief executive Steve Dunn said the company’s forecast gross revenue for the 2015 financial year was over US$300 million, and he expected the new Grass Fed infant formula business to contribute significantly to its bottom line over time.

Synlait is looking for up to 25 suppliers, depending on size, to join the Grass Fed standard. The carrot is a premium for their milk, above the $5.50 per kilogram of milk solids the company has forecast as its farmgate milk price for next season. This season’s milk price is expected to be between $4.40/kgMS and $4.60/kgMS due to continued low global dairy prices.

Synlait won’t reveal what that premium for Grass Fed will be but it’s expected to top the existing range of premium earning options it provides farmers which include A2 milk, Immuron Colostrum and its best practice dairy farming programme, Lead with Pride. It doesn’t reveal what premiums are paid for A2 or Immuron although it does for Lead with Pride. Farmers on the internationally recognised 1SO 65 dairy farm assurance programme are split into two bands, with Gold-Plus accredited farmers receiving an extra 6c/kgMS and Gold-Elite an extra 12c.

Only one supplier has made Gold-Elite status to date. Synlait has 8 certified suppliers under the programme and a further 15 due to be certified in July.

Synlait says the Grass Fed programme will pay significantly above that 12c premium “given the value of the milk for us”, a spokesman said.

Penno said the company’s focus was on ensuring it continues to provide its milk suppliers with opportunities to earn more for their milk, over and above the base price.

Synlait also said its “doors were open” to new suppliers generally for the next season to cope with increased demand.

Synlait Milk’s shares last traded at $2.49, down 26 percent for the year.

(BusinessDesk)

BusinessDesk.co.nz

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