12 Dec 2018

Fonterra offers farmers fixed price for milk

3:20 pm on 12 December 2018

A new scheme has been devised to increase financial security for dairy farmers who sell to Fonterra.

Fonterra forecasts payout will drop by up to 50 cents a kg

Fonterra forecasts payout will drop by up to 50 cents a kg Photo: RNZ / YouTube

It will allow them to sell some of their milk at a fixed price for a season.

Currently, the milk market is volatile, meaning farmers do not know at the start of the season, how much they will earn at the end of it.

But the costs of running their business bear no relation to this up-and-down market.

So from next June, farmers will be able to apply for a fixed price for up to half their milk output after the first global dairy trade of the month.

That price will be derived from figures from the NZX Milk Futures Market, but there will also be an administrative fee of up to 10 cents per kilogramme of milk solids.

The system has been described as a classic hedge market, in which people buy or sell goods or services in advance for a fixed price.

They forgo any chance of an unexpected profit, but also avoid any painful losses.

Fonterra says it will make up to five percent of its milk available in this way, and if the scheme is oversubscribed, everyone will be scaled back pro rata.

It could review this five percent figure, later.

"As a co-operative owned by 10,000 farming families, we are committed to making a difference for Fonterra farmers," said the company's Farm Source and Global Operations chief operating officer Robert Spurway.

"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."

Mr Spurway said Fonterra farmers were generally leading the way in adopting best practice for animal welfare, milk quality and environmental best practise.

He now wanted to recognise that and reward them financially for this initiative.

He said the company was still working through the details on this and would make further announcements in the New Year.

The scheme would be ready in time for the 2019-20 milk season.