Fonterra plans fixed milk price option for farmers

Similar systems are used in the US and Europe. Photo/Getty Images.

Fonterra said it planned to help farmers take some of the guesswork out of their finances by introducing a fixed milk price.

The co-op said the scheme, to be introduced next year, would help farmers with their budgeting, planning and on-farm profitability.

Similar arrangements are available to farmers in the European Union and in the United States.

Farm Source and global operations chief operating officer Robert Spurway said Fonterra wanted to offer farmers flexibility.

"This season reminds us of the volatility in the global marketplace and the impact it can have on the milk price," he said in a statement.

"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," he said.

Fonterra's Farm Source and chief operating officer Robert Spurway. Photo/Supplied.

"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," Spurway said.

It's not the first time Fonterra has tried to introduce more certainty for farmers.

In 2014, the co-op offered a guaranteed milk price, which was enthusiastically supported by some.

But the scheme was scrapped in 2016 when farmers felt it did not properly reflect the co-operative ethos.

Spurway said Fonterra incorporated feedback from farmers on previous pricing tools and ensured that fixed milk price is more transparent, flexible and accessible.

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 per cent of their estimated milk production per farm.

Fonterra will make at least 1 million kg of milk solids available at every event and up to a total of 5 per cent of New Zealand milk supply available in a given season.

Earlier this month, Fonterra cut its farmgate milk price forecast for 2018/19 to $6.00 to 6.30 kg of milk solids from a previous range of $6.25 to $6.50/kg, and confirmed
that its Tip Top ice cream business is up for sale.

Chairman John Monaghan said then that the revision in the milk price was due to the global milk supply remaining stronger relative to demand, which has driven a downward trend on the GlobalDairyTrade index since May.

Fonterra also outlined its plans to reward farmers who go beyond expectations on animal welfare and environmental protection in the 2019/20 season.

Spurway said the co-op would bring together existing milk quality, animal welfare and environmental activities into a single, simpler framework.

"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," Spurway said.