Following Fonterra’s recent announcement that it plans to introduce a market-linked organic milk price for its organic milk farmers, the co-operative has forecast an opening market-linked organic milk price of NZ$9.20 ($6.29) per kg milk solids for the 2016/17 season.
Paul Grave, head of co-operative affairs, Waikato, says while the opening forecast organic milk price is a big step up from the NZ$5.65 ($3.86) per kgMS payment organic farmers currently receive (the organic fixed premium on top of the Farmgate Milk Price), it reflects consistently high prices for organic milk products in its global markets.
“The growth of the organics business is good news for the whole cooperative. Organic farmers actively participate in creating value by providing Fonterra with a certified organic milk stream and all farmer shareholders share in the value created by the organic business through dividend payments.”
Increased demand for all things organic
Increasing demand for organic food in general is leading to high prices in international markets. While global milk prices have been volatile recently, prices for organic dairy ingredients have remained at the same relatively high levels since 2013/14, said Grave.
“Organic milk prices are high because consumers’ appetite for organic milk products is growing faster than supply.”
Grave said Fonterra’s organic business has been consistently profitable recently and has paid back the cooperative’s investment in the business.
Fonterra Australia drops milk price
However, the rise in organic prices contrasts with the amount farmers are being paid for milk, which continues to decline.
Last week, Fonterra Australia revised its farmgate milk price from A$5.60 ($4.12) per kgMS to A$5.00 ($3.68) per kgMS for the current season.
The price change reflects the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar, the company said.
Support loan available
Fonterra Australia is offering its suppliers an interest-bearing support loan of up to A$0.60 ($0.44) per kgMS that is linked to a supply commitment and is repayable from FY18.
Fonterra currently expects the revised milk price will reduce the cost of goods sold for Fonterra Australia by around $A48m ($35.3m) but this will be subject to a number of factors including final milk volumes for the year.
This will contribute to the reduction of operating losses in the Australian Ingredients business this financial year, Fonterra said.