Fonterra forecasts $3.55, or 63%, increase in organic milk price for 2016/17 season to $9.20 per kg/MS

Fonterra forecasts $3.55, or 63%, increase in organic milk price for 2016/17 season to $9.20 per kg/MS

Fonterra is forecasting an opening market-linked organic milk price of $9.20 per kg/MS for the 2016/17 dairy season. Here's the co-operative's full statement.

Following Fonterra’s recent announcement that it plans to introduce a market-linked organic milk price for its organic milk farmers, the Co-operative has forecast an opening market-linked organic milk price of $9.20 per kg milk solids for the 2016/17 season. 

Paul Grave, Head of Co-operative Affairs, Waikato, says while the opening forecast organic milk price is a big step up from the $5.65 per kgMS payment organic farmers currently receive (the organic fixed premium on top of the Farmgate Milk Price), it reflects consistently high prices for organic milk products in its global markets.

Mr Grave said the marketplace for organic milk is very competitive and the market-linked organic milk price will help Fonterra to secure a steady stream of organic milk.

“The growth of the organics business is good news for the whole Co-operative. Organic farmers actively participate in creating value by providing Fonterra with a certified organic milk stream and all farmer shareholders share in the value created by the organic business through dividend payments.” 

Increasing demand for organic milk products, and organic food in general, is leading to high prices for these products in international markets. While global milk prices have been volatile recently, prices for organic dairy ingredients have remained at the same relatively high levels since 2013/14, said Mr Grave. 

“Organic milk prices are high because consumers’ appetite for organic milk products is growing faster than supply.” 

The margins the Co-operative is achieving on its organic milk products are similar to some of its highest-earning consumer and food service products, said Mr Grave. 

“By selling higher-value products at premium market rates, the long-term organics strategy reflects Fonterra’s priority to drive more value from every drop of milk.” 

Mr Grave said that Fonterra’s organics business has been consistently profitable recently and has paid back the Co-operative’s investment in the business. 

“Organics is a profitable business. The Co-operative is focused on growing its organics business to benefit from the consistently high global market prices so that it can increase returns from this business for the benefit of all our farmers”, said Mr Grave.

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Good to see Fonterra increasing payout to organic farmers. Fonterra has two organic processing sites - Waikato and Palmerston North. None in the South Island. Organic milk option is only offered to suppliers in the areas of Waikato, Bay of Plenty, Northland (below Whangarei), Manawatu, Taranaki and the Wairarapa.

I agree CO it is good to see this and rewarding for those who are producing organically.......Organics as I have stated numerous times before is one of the fastest growth areas in food and NZ farmers have been missing out because of the attitudes of those in all our processing industries....are you listening lamb and beef????

watch the power of a fgmp.

It is good, CO but it would have been better if Fonterra had not offended so many of their organic suppliers with their take it or leave it attitude over the past few years. It's sad that Fonterra felt they needed to almost destroy the organic base they had. Over the past few years they have gone from 127 suppliers of organic milk, to 73 suppliers. Now they want 600,000 kg a year more production.
The increase in price appears to be in response to the establishment of the Organic Dairy Hub Co-operative, which organises organic production for various dairy processors, including Lewis Road, Green Valley and Miraka.
Fonterra was paying $1.50 above standard to organic milk suppliers, so despite good prices for organic products they were paying their organics farmers as little as they could get away with.
The Dairy Hub announced they were paying above Fonterra's organic price. Given the huge demand, Fonterra's increase appears to be a "blow them out of the water" response.

This is just amazing , I hope they are correct ........ for everyone's sake

A truly great signal. And just down the page here, another headline reads 'Dairy still on the back foot'.

Maybe it's not really dairy that's on the back foot. Just the part - the largest part - that's been taken in by the volume focused expansion and intensification, the whole palm kernel, GM feed, factory feedlot, soil destroying, water degrading, agri-business fantasy, the environmental effects of which our children are going to be suffering and funding for decades. Perhaps these price signals will help drive a wholesale change in industry thinking, for everyone's financial, social and environmental benefit.

Value not volume. Healthy practices not poisonous. Grass fed and organic. Sustainable not exploitative. It'll be how 'the old order changeth, yielding place to new'. Time to leave the worst of the 20th century behind.

This market segment has been a no-brainer high-growth area for years........but has the average dairy farmer got the wherewithal to run a successful organic farm? Probably quite a steep learning curve and you can't just dial up the chemicals to solve whatever problem you have. It's a whole different mindset, of working with nature not against it. NZ markets itself as "pure" so we should have a lot of "pure" products being exported. I note that Russia has stated it will become the global leader in organic food export (Frankenstein food growing is banned there). That's where we need to be........but of course there's not a politician anywhere to be seen that has a milligram of vision......

And, on a related note has Fonterra caught up with the reality that butter is the new normal in big markets like the US? Margarine "dairy spread" consumption is plunging and butter is rocketing. So why don't they have the gumption to market butter as the healthy alternative? Too scared of being criticised by vested interests maybe? Farmers need to wake up and rattle their cage. There is a world of opportunity out there and we have the platform to provide it..

$9.20 is nothing special when you consider that organic farms run much higher costs, and produce less milk.
I have been talking to organic farmers and other dairy farmers about this today on the dairy farmers NZ facebook page, and the consensus is that at $9.20 it can still be pretty marginal in terms of profitability.

The other thing is, that Fonterras processing capacity for organic milk is only 600,000kg a year according to a current supplier, so I would hardly call this an opportunity as a couple of big farms will completely fill that qouta by themselves.

There are different organic standards that one can achieve so it is a broad statement to say that organic farms run much higher costs and produce less.......I actually prefer biological farming practices as they take organics a step further.

Big upps for finally seeing the light, and by that I mean seeing a point of difference that will hopefully lead down a path we should ha pave trodden long ago. Everyone in the world can produce milk from almost any stock food but few have the wherewithal or physical ability to do grass feed like we can. No brainer.

Organic to my mind (and I'm happy to be corrected) is a specialist subset of grass-fed production. And both sectors together add up to inarguable large scale value.

I remember an Anchor television campaign when I was working in London many years ago, featuring dancing cows, with an accompanying song or hook that the product came from 'where 'the grass grows all year round'.

Was good old, grass-fed, dairy farming not profitable then? Or is it that the attraction of, and search for, easy capital gains on land, the costs of intensification and expansion 'investment', and the accompanying debt mountain, have together undermined or destroyed the business model? They're straightforward questions.

Not a simple answer to your questions, workingman. The mid-late 1980's was a very tough time to be farming, with some farmers across the sectors having to leave the land. Had another round in the 90's though from my perspective it wasn't as tough as the 80's.

All-grass systems require a skill set that is slowly being lost due to bought in feed systems. It is also reliant, under current payment systems, on being able to reasonably manage climatic changes. More and more costs have been added that don't add to on-farm productivity/profitability. In addition to these quality standard/cost creeps, for years the industry/govt has been exhorting farmers to increase production 4% year on year. All this on the back of individual businesses that are price takers not price makers.

The rise of syndicated farms has kept land prices high. Investors don't rely on their investments for their livelihood like grass roots farmers do.

Environmental constraints may see all-grass systems no longer being an option in some areas.

Thanks, CO. Always appreciate your level comments. It is doubtless a very complex picture, coloured by financial, environmental, structural, commercial, ethical and skill considerations (to name just a few). I am convinced, however, that the existing dairy agri-business model is flawed - on most or all of the above considerations.

We are, I believe, approaching a crux of business thinking globally - in which we face numerous approaching discontinuities - and industry restructuring is better managed when planned for rather than forced. It's here I see abject failures of leadership - which affect everyone in the country, not just farmers. As I said above, 20th century agri-business thinking has produced very many fine things, but its trajectory is well over the hill. And a small country like ours - proud of its previous leadership in numerous fields - has new opportunities to seize. These, though, depend on new thinking.

Fonterra need to get the message that it is not just Organics. The future belongs to those who are smart and nimble, working in high value added and niche products. There is little future in bulk commodities.