April 21, 2014

Fonterra introduces new milk pricing structure

Fonterra is planning an overhaul of its milk pricing structure, with an aim to help farmers make informed decisions.

The new system was developed in partnership with Bonlac Supply Company and industry experts such as John Mulvany, UDV, and international pricing system experts.

The key changes include a simplified base price, where multiple seasonal tables are simplified into one seasonal table for all suppliers based on a five/seven, peak/off peak split; SRP (seasonal ratio payment) will be removed and reinvested into off-peak pricing to reduce risk for farmers and maintain a price signal for the value of off-peak milk; Growth incentive replaced and reinvested back into base price and growth will be supported outside the pricing system to make it more attractive and material for farmers in an expansion phase.

Managing director of Fonterra Australia, Judith Swales, said the company developed the system after it received feedbacks from farmers that a simpler milk price system would better support farm profitability and facilitate informed decision-making on-farm.

"We listened to that feedback and agreed we needed to actually do something to lead the industry forward," Swales said. "The new system is simpler, fairer, equitable, and more transparent. It will reduce the range of prices paid to farmers against the average and will help them understand the impact milk price and incentives have on their farm businesses so they can make more informed decisions on farm."

"I believe it will be instrumental to setting up farmers and the industry for long-term, sustainable growth," added Swales.