11 Dec 2014

New milk company to attract farmers

2:19 pm on 11 December 2014

Hard on the heels of yesterday's forecast milk price drop, Fonterra has launched a new company in the South Island which will allow farmers to supply milk for up to five years without having to buy shares in the co-operative.

The new company Mymilk would operate as a stand alone entity and will target farmers in the Canterbury, Otago and Southland regions who were not currently supplying Fonterra.

Chief executive Richard Allen said competition for milk in New Zealand was growing and other processors, including overseas companies, had been attracting farmers on the basis of no shares, despite paying less than Fonterra for milk.

He said Mymilk was looking to bring on board farmers who want to supply Fonterra but could not currently afford shares.

"So Mymilk essentially offers those farmers a five year window and a pathway into the co-operative where their milk can support the co-operative and over that five years they can build up their equity to join Fonterra.

"The South Island focus for us is really about this is where we're seeing the greatest growth in milk and there fore we're focusing on the South Island but we will look at the North Island in the coming year."

The new company's milk supply would be limited to five percent of Fonterra's total volume and payouts would not be any higher than what Fonterra was paying its shareholder suppliers.

Mr Allen said new dairy farmers faced many costs at the beginning and while Mymilk was aimed at non-Fonterra supplying farms, shareholders in the co-operative would not be getting the short end of the stick.

"The key benefits are that when we're bringing more milk into the co-operative we're essentially making the co-operative's fixed costs or assets work harder and what we're doing is driving the asset network harder.

"We're also offering a milk price that we will never pay above the Fonterra milk price at a range of up to 15 cents below so there's potential value there and where we can attract farms that are closer to Fonterra factories essentially we're helping the transport cost of milk down as well."