Fonterra's new landscape

11 Mar, 2019 04:00 AM
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FLAT MILK: Fonterra has acknowledged the falling milk pool is presenting challenges for processors.
FLAT MILK: Fonterra has acknowledged the falling milk pool is presenting challenges for processors.

Dairy processor Fonterra has acknowledged its operating in a “new landscape” as it faces the real possibility of Australian milk collections falling to two-decade lows.

Fonterra’s Farm Source general manager Matt Watt said there was no doubt the depleting Australian milk pool was creating challenges, across the industry.

“Drought, increased culling, on-farm retirements and growing competition are all having an impact on milk collections, which are at risk of falling to two-decade lows,” Mr Watt said.

“ We know it’s tough everywhere, however the direct effects of the drought are most apparent in northern Victoria.”

Mr Watt said Fonterra was offering northern farmers an average of $6.71 kilogram/milk solids on the flat portion their supply.

The incentive was due to seasonal conditions and the heightened competitive environment, playing out in northern Victoria.

“ We know that there are higher input costs associated with producing milk to these specifications,” Mr Watt said.

“To recognise that, we’re offering farmers that can meet these requirements a higher price, similar to what we offer for fresh milk and intend to offer for organic and A2 milk.

“This is the new landscape we’re operating in, and this type of offer is not unique to Fonterra – there are many different processors with many different arrangements.”

He said Fonterra was continuing to work through the offer with suppliers.

Fonterra had not kept the discussions secret, as conversations began with the Bonlac Supply Board in September.

That discussion continued in December and the Farmer Forum was notified in January.

Meanwhile, Parmalat has flagged a simplified milk pricing and loyalty incentives for the coming season.

Last month, it increased its Victorian farmgate milk price by 10 cents, to $6.20 kilogram/Milk Solids.

Parmalat has written to northern dairy farmers pointing out it has been forwarding the Woolworths drought levy to regional suppliers since September last year.

The January payment was 3.3 cents per litre, or about 42c kg/MS.

Parmalat National Milk Supply manager Malcolm Fechney said the increase reflected the company’s commitment to “be ahead of the key market benchmarks, based on our higher quality requirements.

“We will be announcing to our Victorian suppliers a new simplified pricing structure, which will align our market requirements with the milk profile we require,” Mr Fechney said.

He said Parmalat would continue to remunerate farmers who could supply premium quality milk, a flatter profile and January-July production.

The company would also recognise the tenure of a supplier’s relationship with Parmalat by paying an incentive, additional to the market benchmark.

“Parmalat is investigating the option of multi-year contracts and the pricing signals and commitments required to give suppliers confidence, if they chose a longer term contract,” Mr Fechney said.

“However, it appears the proposed code of conduct will have some direction for multi-year contracts and we will need to wait and see what emerges from the code.”

Parmalat announced it’ll increase its butterfat payments by 18 cents a kilogram and protein by 36c/kg.

The move follows Fonterra’s seven cents kg/MS step up, bringing its average price to $6.05kg/MS.

Canadian dairy giant Saputo is also offering farmers $6.05kg/MS, lifting the price by 10 cents.

Australian Consolidated Milk is offering farmers a minimum $6.50 kilogram/milk solids for next season.

ACM announced the $6.50kg/MS is a floor price, which is broken up into nine months of $7kg/MS and $5.50kg/MS for the three spring months.

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