Farmers will get two more opportunities to lock in milk prices with Fonterra from later this year.
Fonterra will offer a guaranteed milk price on 60 million kilograms of milk solids, which will be made available in two tranches.
The first will open in June and will be for 40 million kilograms, offering a 12-month guaranteed price for milk, while the second will open in December for 20 million kilograms, with a six-month price certainty.
The move follows a pilot last year which gave 328 farmers a guaranteed price of $7 per kilogram for 15 million kilograms of milk solids.
However, that turned out to be well below the record forecast payout of $8.75 per kilogram.
Fonterra said it experienced a high level of support for the pilot and that applications had to be scaled back but the eventual farmer participation of 328 farmers was a fraction of its 10,000 suppliers.
It said the guaranteed price gave both farmers and the company certainty.
Craigs Investment Partners senior equity analyst Arie Dekker said it would be advantageous for Fonterra's farmers.
"From their farmers' perspective, there's some usefulness in it because farmers who have capital projects or just want some income certainty for the year ahead might be quite keen to remove some of the volatility," he said.
"It is only on an annual basis, which is obviously a constraining factor, versus large investment decisions that obviously require larger timeframes but still useful to farmers.
"For Fonterra themselves, they have also a lot of volatility that they're exposed to in their business and because of that it makes it difficult for them to meet customer requirements around longer-dated contracts."
Fonterra had customers who would like to lock in prices but because input prices changed due to commodity prices, they took a lot of risk if they entered into term contracts.
"By getting some certainty into their milk price through these guaranteed milk price arrangements, it gives them more confidence to be able to enter into longer contracts with customers."
Farmers who had signed up last year received a lower price than their counterparts but that was the risk they took in exchange for the certainty, Mr Dekker said.
Federated Farmers dairy chair Willy Leferink said while the fixed price could be a useful tool, farmers could be wary.
"We were promised $7 final and you could lock that in straight away," he said.
"Of course, that's been superceded by a massive payout increase and people will probably be a little more careful this time."
Fonterra said further details would be provided next month.
