Fonterra eyes milk growth

 The co-op has launched a separate milk sourcing subsidiary to grow market share in its New Zealand milk pool, and provide a new pathway to membership in the cooperative.

Called mymilk, it will initially invite applications, from farms in the Canterbury, Otago and Southland regions that are not currently supplying Fonterra, for one year contracts, renewable for a maximum of five years, without the obligation to purchase Fonterra shares. At any time mymilk suppliers can apply to join the Co-operative, purchase shares and supply Fonterra directly.

Fonterra chairman John Wilson says it is good for the cooperative and the country for Fonterra to be the first name on the list for farmers considering their supply options.

“We know there are farmers who support the co-operative model, but are at the stage of development where sharing up is currently beyond their financial reach.

“Providing a different pathway of supply through mymilk to farms not currently supplying Fonterra enables farmers to ultimately weigh in behind the co-operative model.

“We are committed to delivering strong returns to our existing farmers and mymilk will contribute to these returns. Every additional kilogram of milksolids will generate improved cost synergies and we currently have large scale, efficient plants in the South Island with spare capacity.”

Wilson says it was important in an increasingly competitive milk sourcing environment that farmers could support Fonterra and then apply to become shareholders in the wholly owned New Zealand cooperative in time.

“Taking a flexible approach supports our cooperative’s strength and ambition to grow. We stand firmly by the cooperative principle that supply should be backed by shares which is why mymilk volumes will be limited to five per cent of Fonterra’s total volumes. Contracts will also be limited to five years in total and will only be available to farms that don’t currently supply Fonterra.

“It is also important that we protect the future of our industry and allow farmers to grow. We do not want a fragmented industry, as this would not be good for NZ dairy farmers and not good for the country.”

Fonterra chief executive Theo Spierings says Fonterra has the ability to reach millions of consumers and customers around the world through its broad product portfolio spanning ingredients, consumer and foodservice.

“We have a clear ambition to be a globally relevant Co-op, generating the highest sustainable returns at the farm gate, topped with profits from our consumer and foodservice businesses in strategic markets. Milk growth is fundamental to that. mymilk sends a signal to our current and potential competitors that we really value the milk from New Zealand farmers and we are out to secure it.”

Contract prices paid by mymilk would be competitive, but Spierings said they wouldn’t be more than the Farmgate Milk Price paid to shareholders.