More money for Fonterra, and less debt for Synlait have been welcome announcements for Mid Canterbury’s farmers.

Members are in the discussion phase of the well-publicised Lactalis sale, which would see the co-op’s consumer business, Mainland group, and associated assets sold to the French-owned dairy giant.

The sale will earn Mid Canterbury Fonterra farmers hundreds of thousands of dollars each.

All Fonterra farmers own shares in the co-operative; They must own one share for every three kgMS (kilograms of milk solids, like milk fats and proteins) they supply Fonterra. Many own a one-to-one ratio of shares to kgMS.

“From memory, the average farm in Mid Canterbury might be around 350,000 kilos of milk solids,” Fonterra board member Andy Macfarlane said.

“That puts $700,000 into the average farm, which is tax free.”

He reckons that money will flow into the community’s GDP growth quite quickly.

“People will probably use it to pay off debt to start with, but that will quickly start to reinvest.

“[It’s] highly significant for regional communities like Ashburton.”

Macfarlane has been on the road this week, hosting meetings with shareholders from Nelson to Timaru.

He said sentiment was generally in favour of the deal, despite people’s personal association with Mainland products.

“Our hearts are with the brands, because they’ve been around a long time.”

“What most people have had to think about it ‘where does the value come from?’. We define value as where you can make a margin, a return on capital.

“It’s a head versus heart discussion, and most people see very clearly that if we can generate 15% on the farmer capital in the special ingredients space, that’s better return than getting sub-10% in the consumer space.”

The sale, which is now inclusive of Bega Cheese Limited, would bring $4.22 into the co-op.

“Of that $4.22 billion, we’re paying the farmer $3.2 billion tax free, and then we’re retaining a billion in the co-op,” Macfarlane said.

“A little bit of that goes towards the transaction… and the rest of the money effectively reduces our balance sheet into a very conservative debt position.”

The sale includes a deal with Lactalis for continued milk supply from Fonterra for the next six or ten years (it varies based on milk type).

If either party wants out after the initial period, they have to give three years’ notice.

“We have to perform, but [Lactalis] have to be able to deliver the New Zealand farmer the best price of milk.

“If they are not paying the best price for milk, we could go elsewhere, or vice versa.”

Farmers will be able to vote on the sale starting next Tuesday.

With last week’s announcement of a final 10.16kgMS milk price, and a $1 billion dollar profit, Macfarlane said Fonterra is "quietly optimistic” about the next few years.

Synlait’s taken a similar vow of cautious optimism as they confirm the sale of their North Island assets, including the Pōkeno manufacturing facility.

The agreement with US healthcare company Abbott is locked in and will bring around $307 million into the company.

That could well cover the $250.7 million of debt Synlait still has, which they managed to halve from $551.6 million last year.

“It’s still to be fully determined,” chief executive Richard Wyeth said, “but it is likely we will pay down debt in the first instance before we look at any further capital expansion.

“It means that Synlait business’ is incredibly secure going forward.”

Faith has paid off for the farmers that stuck around, who’ve been treated to a $10.16 kgMS milk price this season.

A number of Synlait incentives will mean some farmers get an extra 50 cents per kilo, Wyeth said.

“At $10.66 a total average payout is a record result, certainly great to see.

“Everyone in the dairy industry should be really proud of what we’ve achieved over the last 12 months.”

He said, like Macfarlane, that money will find its way back to local cafes, machinery businesses, schools and clubs.

“For the Ashburton region, if you think, let’s say the average milk price is closer to $8, there will be an extra $140 million dollars injected over and above an average milk payout, injected into the local economy.

“Ashburton’s a rural service town, ultimately, so that money coming into the community is fantastic.

“The rural towns will certainly be in a better position than some of our urban neighbours in Auckland and Wellington in the short term.”

By Anisha Satya