It has a comfortable number of new supplier farmers but has not disclosed the actual numbers it wants or those who have committed so far.
Chief executive Leon Clement said Waikato farmers who have promised their milk supply are not responding to any introductory offer or incentive, the nature of which would be unsustainable.
Some want to reinvest their Fonterra share capital in their farming businesses and others were attracted by Synlait’s Lead with Pride environmental and sustainability rewards programme.
“We need enough suppliers to get started here and we are on track to do that,” he said.
Within the 150km radius Waikato pick-up zone many dairy farmers had invested in Canterbury or have friends and relatives who already supply Synlait.
They were among the first group of potential suppliers to Pokeno.
To cease supplying Fonterra farmers need to notify the co-operative of their intention by February 28 but they can then recall that move at any time until May 31.
Clement said competition among dairy companies for milk supply is a good thing and Synlait’s milk price has to be competitive.
In 2018 it paid $6.78/kg milksolids, including a 13c average premium, to 200 farmers in Canterbury, compared with $6.79 for fully-shared Fonterra suppliers.
In late January Synlait reduced this season’s forecast to $6.25 from its opening of $6.75 and said it will give a further update in May.
He is not aware of any new farm conversions or major herd expansions under way with an intention to supply Pokeno.
Only 50km to the south Open Country is seeking supply farms for its Horotiu milk powder plant under construction.
“We are aware of the competition but that’s not a negative. We are not here to destroy value but to build value for farmers, our investors and NZ dairying.”
Pokeno was designed to produce up to 45,000 tonnes of powder annually, including infant-grade skim milk, whole milk and infant formula base powders.
Throughput will be governed by seasonality and customers’ requirements, Pokeno commercial manager John Beeby said.
In addition to the milk reception area, natural gas-fired boiler and evaporator and drier Pokeno will have a wet ingredients mixing room and a huge powder products storage hall.
After commissioning Pokeno will not go straight to high-end infant nutrition without making sure its machinery and operators are working reliably with standard grade milk powders initially.
Infant formula blending and packaging will continue to be done at Mangere, Auckland, in the 35,000t facility on behalf of customers in 50 different countries, Clement said.
Infant formula base will be trucked from Pokeno to Mangere in 25kg bags but the 28ha Pokeno site has room for expansion.
Synlait already produces 45% of the infant foods exported from NZ. It collects 4% of the national milk pool and makes 8% of the export revenue, which is a good indication of the value added.
In the 2018 financial year 28% of Synlait’s sales were infant formula (35,580t), double the proportion of the year before.
It has forecast the sales volume will grow by 10,000t to 45,000t this financial year.
The largest infant nutrition market in the world is China, followed by the United States, both of which feature strongly in Synlait’s portfolio of customers.
Clement and Beeby invited rural media representatives to see progress on the Pokeno build, being done by Babbage Consultants and First Principles Constructors (FPC) under contract to Tetra Pak Oceania.
FPC arose out of the collapse of Ebert Construction last August and the small amount of time lost has been recovered, Beeby said.
Two processing sites and more milk pools will reduce Synlait’s risk and exposure to disruption and provide safeguards for its customers, Clement said.
While market conditions could change during the two years from idea to reality at Pokeno, Synlait has consistently demonstrated its sound planning and subsequent risk-taking over the past decade.
It also has a strong balance sheet – a 20.9% debt to debt plus equity ratio last July 31.
Processing optionality and product mixes are widening with a liquid milk plant and lactoferrin expansion at Dunsandel.
Synlait is recruiting A1 protein-free (A2) supply in the north to grow that category, now 15% of the Dunsandel plant throughput in Canterbury.
It would have the reception and flow-on facilities at Pokeno from day one to handle differentiated milks.
The Talbot Forest Cheese agreement also complemented infant nutrition by providing whey products, optimising milk pick-ups and taking milksolids at the peak.
“We put a lot of time and thinking into careful, adjacent movements that are complementary to our core business and help our existing customers.”
Clement said Synlait’s submission to the Government’s review of the Dairy Industry Restructuring Act will take the view it has been good for NZ.
“Good regulation and good behaviour from the industry sets the foundation.
“Regulation shouldn’t impose outcomes but create a framework for their achievement.
“Increasing competitiveness, transparency and encouraging innovation are key principles.”
He would not go into specifics on DIRA matters before submissions are received and published by the Ministry for Primary Industries.
