Fonterra introduces Fixed Milk Price tool

The New Zealand dairy cooperative said its new Fixed Milk Price can help with budgeting, planning, and managing on-farm profitability.

Fixed Milk Price joins a set of seven financial tools to assist farmers in sharing up and investing in their farms. These tools include the Share-up Over Time Contract, Invest as You Earn, Dividend Reinvestment Plan, Strike Price Contract, Contract Fee for Units and Farm Source’s Reward Dollars for Shares and Smart Finance.

Farm Source and global operations chief operating officer Robert Spurway said, “This season reminds us of the volatility in the global marketplace and the impact it can have on the milk price. While the coop manages this volatility as best it can when selling our products, we recognize that it’s farmers who feel the brunt of it.​

“In addition to providing farmers with the opportunity to get more price certainty, the Fixed Milk Price will also provide the cooperative with certainty on the margins it can achieve on a portion of milk supplied. It’s a win-win.” ​

In the development of the new tool, Fonterra incorporated feedback from farmers on previous pricing tools and said Fixed Milk Price is more transparent, flexible and accessible.

How it works

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% of their estimated milk production per farm.

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

Season update

Farmers were also updated on the coop’s plans to provide them with more meaningful recognition and rewards in season 2019/2020 for producing high quality, safe, sustainable dairy.

“We will better recognize the many Fonterra farmers who go above and beyond to produce world class dairy, care for their animals and protect the environment for generations to come. At the same time, we’ll target support to those farmers who want to make improvements,”​ Spurway said

To help make it simpler for farmers to meet increasing expectations, the coop said it will bring together existing milk quality, animal welfare and environmental activities into a single framework, giving them greater clarity about what they need to do to supply Fonterra today and in the future.

“Fonterra will also set out a clearer and more consistent approach on how to manage situations where minimum standards are not being met, helping to protect the reputation of the vast majority of farmers, the cooperative and the wider dairy industry,”​ Spurway added.

The coop is consulting with farmers through workshops and once all input is received, the new approach will be finalized for introduction in June 2019.