Co-ops help young farmers gain a foothold in dairying
Fonterra is extending its MyMilk initiative to the North Island aiming to make it easier for more dairy farmers to get into their own farms, and to grow with the co-op.
The Fonterra subsidiary functions as a stepping stone for farmers who may not be able to afford the initial outlay for buying Fonterra shares. It buys milk from them at a slightly lower price, for a maximum of five seasons, and helps them transition to become full shareholding Fonterra suppliers.
“It’s a pathway,” says Hobson. “We’re an option for farmers supplying another processor, we’re an option for new conversions or someone buying their first farm.”
Three years in, Hobson says MyMilk has 80 suppliers, and 20% of the first year’s intake have already transitioned to full Fonterra shareholding. Although MyMilk contracts lock in suppliers for only one season at a time, none has so far left the scheme for another company.
Hobson says the MyMilk model attracts a range of farmers.
“The young farmers are the ones who excite me a lot, where they’ve gone and bought their first farm and they’ve used MyMilk as the vehicle to do that.
“Obviously the share capital’s a push for them when they’re buying that first farm but they’re strong believers in the co-op so they supply us, the milk goes to the co-op and they start building up ownership through units then join the co-op down the track.”
It is too early to talk details, but Hobson says a scheme is in the pipeline looking at ways to bank the price differential so it builds up over time and makes it easier for farmers to make the transition.
Normally Fonterra suppliers need one share for every 1kgMS supplied to the co-op, which Hobson says could mean an outlay approaching $1 million for an average South Island dairy farm.
“At some point along their supply journey with MyMilk there will be an outlay for shares, we hope, as they join the co-op,” says Hobson.
“There’re other benefits in joining the cooperative as well that we hope will attract them across. Our initial challenge is attracting milk into MyMilk, then retaining it, then transitioning that into Fonterra. So there’re three pillars we focus on.”
A lean operation with just five staff, based in Christchurch, MyMilk operates anywhere in the South Island where Fonterra tankers go, but not the West Coast.
There are no plans to expand to the North Island because of the different dynamics and demographics of the industry there. Dairy conversions are still occurring in the south, says Hobson.
They will also talk with established dairy farmers considering a change.
“I wouldn’t say ‘poaching’, but we’re an option for any farmer who’s supplying someone else. If they’re looking at supporting the cooperative and they see Fonterra as a strong company and they’re wanting to look at that as a supply option they can definitely come and talk to us.
“Our offer is one of the most flexible out there in terms of our contract,” he says. “A lot of processors will have a long contract period and lock the farmer in, so we’ll talk to our flexibility.”
One of MyMilk’s first signings is Erik Lenssen, equity lease partner in Birchdale Dairies, near Dunsandel in the Selwyn District. The third-year conversion, milking about 780 cows, is still in development after conversion three years ago.
Lenssen says the decision to go with MyMilk was primarily financial in not having to stump up for shares, as well as the flexibility to get out if required, at a time when they didn’t really know their long-term direction.
For a startup presented with a choice of MyMilk, Synlait or buying Fonterra shares, buying shares looks more like investing in the stock market rather than in dairying, he said.
Buying shares from the start would have cost about $1.76m, although the dividend would’ve paid the interest on a loan.
“Financially at that time we didn’t know how it was going to work out. The payout was still very low and there was no promise of a high dividend.”
MyMilk is paying a fair rate for milk, said Lenssen. “What happens going forward.... if they start docking it just below the milk price and Synlait starts paying the milk price, it might have an affect on a few people but it’s not significant enough to worry about.”
