Tuesday, 27 June 2023 09:55

Farmers accept payout dynamics - Council

Written by Sudesh Kissun

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Fonterra Co-operative Council chair John Stevenson.

Fonterra farmer shareholders always look to their co-operative to pay them the highest sustainable milk price, and understandably they ask questions when they see global differences in milk price, says Co-operative Council chair John Stevenson.

He was commenting on Fonterra having to pay its Australian farmer suppliers $1.50/kgMS more than its New Zealand suppliers.

Last month, Fonterra Australia announced an opening weighted average milk price for the 2023/24 season of A$8.65/kgMS. That's NZ$9.50/kgMS. For NZ suppliers, the co-op last month opened with a margin of $7.25 to $8.25, and a midpoint of $8/kgMS.

Stevenson told Dairy News that it is important to note that the NZ and Australian milk prices are calculated in very different ways, reflecting the different markets, product mixes and competitive environment.

"Fonterra's NZ farmers have received comparatively higher milk prices than their Australian members in some previous seasons. Fonterra management are best to comment on the detail of these reasons.

"Council is interested in Fonterra's strategic choice to focus on NZ milk, differentiating it in the global market and earning a premium.

"For some time, we have been asking how this 'premium' will be evidenced and measured.

"We have yet to see this value identified in reporting from management, so will continue to ask this on behalf of our farmers.

"As well as comparing the NZ milk price to Australia's, Council is also keenly interested in the NZ milk price compared to EU and US milk prices. We include reporting on that in our annual report each year, which is released prior to the Fonterra annual general meeting."

A shrinking milk pool in Australia is forcing major processors, including Fonterra, to outbid each other and secure farmer suppliers.

Federated Farmers dairy section chair Richard McIntyre says NZ dairy farmers would love to have a higher milk price, but they are aware that milk price is affected by a processor's product mix and the market the product is sold into.

"We see this between NZ processors, but the distinction is particularly evident between NZ and Australian processors," he told Dairy News.

"Australia's milk production is largely consumed internally, whereas the vast majority of New Zealand's milk is exported."

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