Fonterra unveils a new financial tool it says will help farmers gain more certainty of what they will be paid for their milk

Fonterra has announced plans to offer farmers a fixed milk price.

Fonterra's statement is below.

FONTERRA TO HELP FARMERS GET GREATER MILK PRICE CERTAINTY

Fonterra has today announced that it will introduce a new financial tool to help farmers gain more certainty of what they will be paid for their milk for the season. The new Fixed Milk Price can help them with budgeting, planning, and managing on-farm profitability.

Fixed Milk Price joins a set of seven innovative financial tools to assist farmers in sharing up and investing in their farms. These tools include the Share-up Over Time Contract, Invest as You Earn, Dividend Reinvestment Plan, Strike Price Contract, Contract Fee for Units and Farm Source’s Reward Dollars for Shares and Smart Finance.

Farm Source and Global Operations Chief Operating Officer Robert Spurway says, “as a Co-operative owned by 10,000 farming families, we are committed to making a difference for Fonterra farmers and providing flexible options will help them share up, invest on farm, and manage financial exposure.”

“This season reminds us of the volatility in the global marketplace and the impact it can have on the milk price. While the Co-op manages this volatility as best it can when selling our products, we recognise that it’s farmers who feel the brunt of it.

“In addition to providing farmers with the opportunity to get more price certainty, the Fixed Milk Price will also provide the Co-operative with certainty on the margins it can achieve on a portion of milk supplied. It’s a win-win,” says Mr Spurway.

In the development of this new tool, Fonterra incorporated feedback from our farmers on previous pricing tools and ensured that Fixed Milk Price is more transparent, flexible and accessible.

How it will work

  • All Fonterra farmers will have the opportunity to participate on a monthly basis (excluding January and February).
  • The Fixed Milk Price will be referenced to the NZX Milk Futures Market, minus a service fee of no more than 10c/kgMS initially.
  • Over the course of a season, farmers will be able to fix up to 50% of their estimated milk production per farm.
  • Fonterra will make at least 1 million kgMS available at every event and up to a total of 5% of New Zealand milk supply available in a given season.

Farmers were also updated today on the Co-op’s plans to provide them with more meaningful recognition and rewards in season 2019/2020 for producing high quality, safe, sustainable dairy.

“Fonterra farmers have long led the way when it comes to milk quality, animal welfare and environmental best practice, and should be recognised for the difference they are making as a Co-op,” says Mr Spurway. 

“We will better recognise the many Fonterra farmers who go above and beyond to produce world class dairy, care for their animals and protect the environment for generations to come. At the same time, we’ll target support to those farmers who want to make improvements.”

To help make it simpler for farmers to meet ever increasing expectations on farm, the Co-op will bring together existing milk quality, animal welfare and environmental activities into a single, simpler framework, giving them greater clarity about what they need to do to supply Fonterra today and in the future.

“Fonterra will also set out a clearer and more consistent approach on how to manage situations where minimum standards are not being met, helping to protect the reputation of the vast majority of farmers, the Co-operative and the wider dairy industry,” says Mr Spurway.

While the focus will be on recognising farmers for doing a great job on farm, the small minority of farmers who do not meet minimum standards will still be subject to demerits and other measures.

The Co-op is consulting with farmers through a series of workshops held across the country. To date, farmers have been supportive of the concept, providing a range of views and robust feedback. Once all input is received, the new approach will be finalised for introduction in June 2019.

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