It’s a worthy discussion NT,
The premium that a2 farmers receive in covering conversion and other costs over a1 farmers is 8 to 10%, ATM have told us that, however the retail premium is typically 50%, hence the potential of the a2 proposition.
I don’t know explicitly if ATM pay-outs to farmers swing as much over time or to the same extent that Fonterra’s pay-outs may do, though one would anticipate that Fonterra, simply because of their size and influence on farm gate prices, very probably do set an underlying market price in NZ, similarly with the large Australian dairy companies.
What does seem to be more certain though is that a2 retail prices have been consistent through both the rise and the fall in farm gate costs.
One can see the effect of high farm gate prices on both Fonterra and Synlait gross margins in the chart below.
ATM gross margins have not been affected, in fact they have risen, I attribute that to increasing efficiencies from an increasing scale of distribution and production including gains made at the Smeaton Grange facility offsetting any effect from the peak in farm gate prices.
If ATM are indeed reducing farm gate pay-outs right now we should see that already really quite nice gross margin pick even up a little further at HY15 reporting time, let’s see.
Attachment 6362