Fonterra thirsts for milk

Fonterra chairman John Wilson says sharing up is currently beyond some farmers' financial reach. Photo / Mark Mitchell

Dairy company targets farmers without need to buy co-op shares.

Fonterra has moved to shore up its supply base by forming a subsidiary that can take in more milk without suppliers having to buy shares in the co-operative.

A wholly Fonterra owned unit - mymilk - has been formed to target farmers in the high-growth provinces of Southland, Otago and Canterbury and will look at doing the same in the North Island over the the next 12 months.

Up until now suppliers have had to buy shares in Fonterra in order to supply the co-operative but with mymilk, farmers will be invited to apply for one-year contracts, renewable for a maximum of five years, without the obligation to buy shares.

Fonterra chairman John Wilson said it was good for the co-operative 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," Wilson said.

ASB Bank rural economist Nathan Penny said the New Zealand milk market was becoming more competitive, particularly in the south of the South Island.

Fonterra's share of the national milk pool has slipped from close to 90 per cent to around 86-87 per cent.

"I think that they [Fonterra] would like to get that back again, or to at least halt that decline," Penny said.

Fonterra said every additional kilogram of milksolids would generate improved cost synergies for its big South Island plants.

"We do not want a fragmented industry, as this would not be good for NZ dairy farmers and not good for the country," Wilson said.

Chief executive Theo Spierings said Fonterra's ambition was to be a globally relevant co-op and that milk growth was 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," Spierings said.

Fonterra said prices paid to mymilk suppliers would never exceed the farm gate milk price set by the co-op, and the prices could be up to 15 cents lower.