May 14, 2015

 

Fonterra's Milk Price Range provides better clarity for income and profit margins

 

 

Fonterra Australia has recently introduced Milk Price Range, a new tool for its Price Risk Management offering to suppliers.

 

Following a successful pilot programme last season, the tool was launched across Fonterra's Australian supplier base.

 

Building on other Price Risk Management tools such as Fixed Based Milk Price, Milk Price Range allows suppliers to set monthly minimum and maximum range prices for a particular volume of milk solids in a season.

 

The tool will assist suppliers in running farming businesses by providing a stronger clarity on income and profit margins.

 

"The advantage of Milk Price Range is that it gives suppliers greater certainty throughout the season for their milk price, and therefore margins and growth plans," said Matt Watt, the National Milk Supply Manager of Fonterra Australia.

 

"Farmers will know well before the season starts what they'll be receiving for a volume of their milk, and they'll be less exposed to volatility through the season. This will give our farmers an increased ability to plan ahead, budget, and manage their farms."

 

Milk Price Range will allow successful applicants to establish the minimum and maximum monthly price for between 10% and 70% of their expected milk solids for the season.

 

The tool offers farmers greater security as a fixed volume of their monthly milk solids will receive a minimum price, while still being exposed to some market upside.

 

Milk Price Range was to be allocated to eligible suppliers in a market-based tender process, ensuring fairness for all suppliers.

 

Tony Marwood, the chairman of Bonlac Supply Company (BSC), said that the BSC Board and Supplier Forum had worked closely with Fonterra to ensure Milk Price Range would deliver the benefits that farmers need. 

 

"Key benefits for farmers include the ability to manage margins by knowing their milk price better, while still allowing for the benefit of some market improvement, and (strong) confidence for lenders, assisting famers to manage debt and plan for the future," said Marwood.

 

The tender period opened to current Fonterra suppliers last month, ahead of the Milk Price Range announcement on May 8, 2015.