Palm kernel knotty issue on Fonterra agenda

Palm Kernels, a byproduct of the palm oil process, is a solution when farmers faced bad weather or drought. Photo / Getty Images

Fonterra executives will have their work cut out convincing farmers to reduce their use of what has been a key feed supplement over the past 10 years - palm kernel.

The co-op last week said it was taking steps to "future proof" the co-operative's position as a world-leading and trusted producer of pasture-based milk products.

Executives are meeting farmers to discuss last week's annual results, and the palm kernel issue is likely to feature.

Miles Hurrell, director of co-operative affairs, said consumers globally were driving a trend towards dairy products that were sourced from pasture-based milk.

"More than ever, consumers want to know what is in their food and where it comes from," he said. "We are in a unique position to make the most of this trend to enhance returns to our farmers who are already renowned for producing the best milk in the world."

Fonterra has said the recommended maximum of 3kg/per day/per cow was a voluntary guideline.

"After pasture, palm kernel [PKE] is one of the cheapest supplementary feed options for farmers, and our data shows that use of PKE is increasing," Hurrell said.

Palm kernel has become a key standby for farmers, particularly during abnormal weather, when consumption can go up to 10kg a day. The product came into its own in 2007 when a drought sent North Island farmers scrambling for new feed sources. That year marked a step change for palm kernel as a viable feed supplement. Imports of palm kernel - a byproduct of the palm oil process - have gone from 96,000 tonnes in 2003 to 2 million tonnes last year.

Federated Farmers dairy chairman Andrew Hoggard said farmers would take a dim view on cutting back on palm kernel.

"It's been fairly contentious among farmer-shareholders," he said. "It hasn't gone down too well."

Hoggard said he had fielded comments from farmers to the effect that Fonterra was telling them how to farm.

"However, farmers have to be sympathetic and be reminded that we have to sell a product to a market place," Hoggard said.

"So if there are consumer issue around the use of PKE, which may detract from the value of our product, then we need to bear that in mind."

Hoggard said palm kernel was a "handy solution" when the weather turned bad - either drought or the current cold patch. It has also allowed farmers to push their stocking rates higher.

ANZ rural economist Con Williams said it appeared to be only a guideline.

"It's only a guideline at this stage and unless it is accompanied with a financial incentive I find it difficult that farmers won't use PKE in whatever quantity when they are in a difficult situation," he said.

"From an industry wide perspective the focus is coming back on pasture performance and efficient utilisation. This due to it being the lowest cost option."

Increased palm kernel use has played a part in New Zealand's record breaking production in recent years as it allows higher stocking rates.

This year, Fonterra expects production to fall by 5 per cent.

Rural lending specialist Rabobank said higher than normal cow culling rates and reduced use of feed supplements could drive national milk production down by 8 to 10 per cent this season.

Statistics NZ data showed imports of palm kernel fell to 110,679 tonnes in August from 193,471 tonnes in July and from 138,494 tonnes in August last year.

Farm feed

• Palm kernel application

• 110,679 tonnes in August

• Down from 193,471 tonnes in July