A clean, green environment and animal welfare issues will play a critical role if Northland dairy farmers are to qualify for a new payment based on the quality of milk they supplied.
Fonterra has announced changes to the way it will pay farmers who met the dairy giant's on-farm sustainability and milk quality that stands out in the global market.
The new payout under the Co-operative Difference Payment, to kick in from June next year, will be a maximum of 10 cents per kilogram of milk solids.
The total amount available to be paid will not change, but a proportion of the farmgate milk price will be redistributed between farmers to better reflect the value of the milk from individual farms.
Finer details will be worked out over the next few months.
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The new payment will replace the current Farm Source Rewards Dollars where each farm gets about $1200 for meeting a number of best practices.
Federated Farmers Northland acting dairy chairman Matt Long said he would support the new payment as long as its terms were realistic.
As an example, he said some farmers would struggle to meet the somatic cell count— the number of white blood cells in milk.
Presently, that cell count has to be under 400,000 per millilitre of milk but that number comes down to under 150,000 under the Co-Op Difference Payment.
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"Some farmers struggle to keep it to under 400,000 in drought so I am concerned about the cost of meeting the requirements. Things like environment management and animal welfare issues are things farmers do anyway."
Okaihau dairy farmer Terence Brocx said the new initiative was not just about milk quality but animal welfare and the whole farming system as people needed to know how the milk they consume was produced.
"People are also concerned about environmental impact, whether farming has been done in a sustainable manner, waterways and the like so it's a moving target all the time.
"Fifty years ago, cows could drink from waterways but now they can't. Ten to 20 years ago, we started fencing the waterways and now we are fencing and planting which helps in a number of ways."
Brocx said the new payment would encourage farmers to improve milk quality and provide an incentive to those who had not been farming sustainably to do so.
While the Farm Source Rewards Dollars would go, Brocx said farmers would earn more through the new payment as they would be paid per kgMS.
Fonterra has narrowed its 2019/20 forecast farmgate milk price range to between $7.10 and $7.30 per kgMS and the opening price for next season of between $5.40 and $6.90.
A payout of $7.10 would earn Northland dairy farmers $639 million based on roughly 90 million kg of milk solids they sell to Fonterra each year.
Their earnings would drop to $486m if they were paid $5.40 per kgMS.
Fonterra chief executive Miles Hurrell said the Co-op Difference Payment was part of the company's strategy to add value to New Zealand milk and respond to an increasing demand from customers for sustainably-produced milk.
"We've always paid our farmers based on the value that milk provides to the co-operative. 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," said Hurrell.
"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."