Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-op is changing the way it will pay farmers: up to 10c/kgMS of its farmgate milk price will be known as a ‘cooperative difference payment’.
It will be paid to farms that meet the co-op’s on-farm sustainability and value targets. It’s part of the co-op’s strategy to add value to New Zealand milk and responds to increasing demand from customers here and around the world for sustainably-produced dairy.
Fonterra says the payment will be funded out of the farmgate milk price.
“The total farmgate milk price will remain the same across the cooperative, but the amount that each individual farm is paid will vary depending on their contribution under The Co-operative Difference, in addition to the other variables, like fat and protein, which affect the amount that’s paid,” says Fonterra chief executive Miles Hurrell.
“We’ve always paid our farmers based on the value that milk provides to the cooperative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.
“This payment helps us meet the changing needs of our customers, so they continue to choose our milk and enjoy dairy as a sustainable and nutritious choice.
“We want to deliver the innovation, sustainability and efficiency needed to make the most difference to our strategy and our bottom line. It makes sense to financially reward those farmers who go the extra mile to help our co-op differentiate its milk.”
Last year Fonterra launched The Co-operative Difference – a straight-forward framework to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.
The payment will replace the Farm Source Reward Dollars farmers currently earn through The Co-operative Difference and will work on a tiered system. The more a farmer achieves in The Co-operative Difference programme, the higher the payment will be. The precise payment structure will be confirmed over the next few months following discussions with farmers but will be no more than 10c/kgMS.
