Fonterra boosts organic milk premium

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Fonterra is offering organic dairy producers a new NZ45 cents per kilogram of milk solids premium to boost supply amid growing demand.

It’s also moving to rolling rather than fixed contracts to give suppliers greater certainty over Fonterra’s commitment to the organic strategy, which still accounts for less than one per cent of total milk supply.

Fonterra’s move is something of a U-turn to the shake up of its previously unprofitable organics business in the past four years.

In 2011, it scaled back its operations as public appetite for organic dairy products waned after the global financial crisis.

Then in 2013, it refocused supply to the central and lower North Island, leaving many Northland organic farmers out in the cold.

Fonterra on Wednesday said its new strategy was about giving its 73 organic dairy producers in New Zealand greater certainty than they’ve had in the past because it recognised “it has been a difficult journey”.

It wants to add an extra 600,000kg/MS of supply in 2015, rather than a set number of producers.

“This is about controlled growth and follows us consulting widely with our organic farmers and customers about what they want,” said Craig Deadman, Fonterra’s global business manager for organics.

Contracts for nearly half of its existing suppliers are coming up for renewal in 2015.

The new rolling contracts include farmers having to give 16 months’ notice if they want to quit supply, while Fonterra must give 28 months’ notice.

Suppliers not yet producing organic milk will get the new NZ45 cents per kg/MS payment while they undergo the rigorous three-year conversion process and after that, the extra payment will be added to the existing $NZ1.05 premium for organic milk to help towards the ongoing costs of maintaining certification.

It comes at a time when the overall forecast payout for dairy farmers this season has dropped to $NZ4.70 kg/MS and dairy prices reversed their recent upward trend to fall by 8.8 per cent in Wednesday morning’s GlobalDairyTrade auction.

BusinessDesk

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