Farm Tender

NZ Farmers rewarded or punished - Fonterra takes a stand on animal welfare and environment

Fonterra farmers will receive rewards for better care for the environment and their animals, but laggards will be punished.

From July next year they will also be able to fix the price of a percentage of their milk in a hedging scheme with the co-op.

A spokeswoman said it was too soon to give any details of the rewards and demerits scheme, which would not be introduced until the 2019-2020 season. Recently Synlait said it would pay its farmers a premium milk price if they stopped using palm kernel.

The co-op was still consulting with farmers over the scheme, which would focus on milk quality, animal welfare and environmental best practice. It could include mitigation measures to reduce greenhouse gas emissions.

Synlait pays its farmers a premium for not using palm kernel Fonterra may follow suit
Synlait pays its farmers a premium for not using palm kernel. Fonterra may follow suit.

Farm Source and global operations chief operating officer Robert Spurway said the co-op would target support to farmers who wanted to make improvements.

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

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"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 co-operative and the wider dairy industry," Spurway said.

The minority of farmers who did not meet minimum standards would still be subject to demerits and "other measures" which were not specified in Fonterra's announcement.

Fonterra chief operating officer global operations Robert Spurway says the co-op has introduced a fixed milk price scheme to better deal with volatility.

Fonterra chief operating officer global operations Robert Spurway says the co-op has introduced a fixed milk price scheme to better deal with volatility
Fonterra chief operating officer global operations Robert Spurway says the co-op has introduced a fixed milk price scheme to better deal with volatility.

From July next year farmers will be able to fix the price of up to 50 per cent of their milk production, although the programme may be oversubscribed because it will make available just 5 per cent of milk supply in a given season.

If too many farmers apply, the scheme will apply on a pro-rata basis.

Spurway said the milk market was one of the most volatile, and the proposed scheme would better help farmers plan their finances.

"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.

"In addition to providing farmers with the opportunity to get more price certainty, the fixed milk price will also provide the co-op with certainty on the margins it can achieve on a portion of milk supplied. It's a win-win," Spurway said.

The announcement follows a recent announcement by the Reserve Bank that a small number of dairy farmers are struggling to pay down debt.

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Altogether agriculture debt is $62 billion, with dairy at $41.5b, sheep and beef $14.1b and "other" including horticulture $6.3b. Three years ago dairy farmer debt stood at $34b.

How the fixed milk price will work:
• 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 per kilogram of milksolids initially.

• Over the course of a season, farmers will be able to fix up to 50 per cent 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 per cent of New Zealand milk supply available in a given season.