One of China’s leaders in consumer dairy production, Bright Dairy & Food Co Ltd (“Bright Dairy”), has agreed to invest $82 million in the Canterbury-based milk processing company, Synlait Milk Limited (“Synlait Milk”), to create a partnership to drive Synlait’s value-added export strategy.
As a result of the agreement, and subject to regulatory and shareholder approval, Bright Dairy and Synlait Limited will become joint owners of Synlait Milk, with Bright Dairy holding a 51 per cent interest.
Independent of the partnership and Bright Dairy, Synlait Limited will continue to own and operate the Synlait farms through a separate company.
A key element of the value-added export strategy will be the sourcing of high quality infant and whole milk powders for Chinese consumers, facilitated by Bright Dairy’s dominant presence in this key growth sector.
Listed on the Shanghai Stock Exchange, Bright Dairy holds the leading position in value-added consumer dairy products in China and is China’s third largest dairy company by volume.
The company, a subsidiary of Bright Food (Group) Co Ltd, has a market capitalisation of approximately $1.7 billion and reported revenues of approximately $1.63 billion for the 2009 calendar year.
Federated Farmers believes the weakness of New Zealand’s capital markets has been exposed by Bright Dairy & Food Co Limited of China, taking a 51 per cent stake in Synlait Milk.
“After last year’s abandonment of an Initial Public Offering, it’s a damming indictment on our capital markets that Synlait couldn’t rely on New Zealand to provide the investment capital necessary to fund its expansion,” says Lachlan McKenzie, Federated Farmers dairy chairperson.
“With a majority of Synlait Limited’s processing arm being bought by Bright Dairy & Food Co Limited, I think New Zealanders should be thankful Fonterra Cooperative Group, Westland Dairy Cooperative and Tatua Cooperative Dairy Company are Kiwi owned by Kiwi farmers.
“Federated Farmers now hopes Synlait Milk will look to work with our local cooperatives to develop the quality end of the Chinese market. New Zealand can only meet a small part of China’s total needs so developing the value end of the market is in our interests.
“In this, Bright Dairy has a huge advantage with its distribution channels and I’d like to extend that same message to Natural Dairy, which in the box seat for CraFarms.
“Yet we have to be realistic that this is a processing investment and that kind of investment is a two-way street, as the number of New Zealand joint ventures in China illustrates. Synlait Limited’s interest in Synlait Milk will reduce down to 49 per cent but Synlait Limited is retaining total control over Synlait Farms.
“While this seemingly creates a clearer separation from Synlait Milk, New Zealand must be the only country in the world, which forces its major exporter to help out its direct competitors.
“Bright Dairy & Food Co Limited will wish to expand and that will demand more milk but under the Dairy Industry Restructuring Act, Fonterra is obligated to supply 20 per cent of Synlait Milk’s needs for the current year.
“While there is talk about Chinese consumer-ready products being produced in Canterbury, the reality is that the Emissions Trading Scheme makes it far cheaper to ship bulk milkpowders up to China for value-add processing there.
“It doesn’t take a rocket scientist to figure out that since milkpowder is lighter and easier to ship than pre-packs, you won’t pay our labour and compliance costs just to produce it here.
“The ETS will simply not add one yuan in China to what comes out of the driers in Canterbury.
“It’s also ironic that it looks like Synlait Milk looks like becoming a subsidiary of a local authority trading enterprise, in this case, the Shanghai municipality,” Mr McKenzie concluded.
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