Fonterra said it would pay its organic milk farmers $9.20 a kg of milksolids for 2016/17 - more than double what it will conventional farmers in the current season.

The move follows on from the co-operative's announcement that it plans to introduce a market-linked organic milk price for its organic milk farmers.

Paul Grave, head of co-operative affairs, Waikato, said that while opening forecast organic milk price was a big step up from the $5.65 per kg payment organic farmers currently receive, it reflected consistently high prices for organic milk products in its global markets.

The farmgate milk price for conventional suppliers for the current season, which ends on May 31, stands at $3.90 a kg.


Grave said the marketplace for organic milk was competitive and the market-linked organic milk price would help Fonterra to secure a steady stream of organic milk.

He said the growth of the organics business was good for the co-operative.
"Organic farmers actively participate in creating value by providing Fonterra with a certified organic milk stream and all farmer shareholders share in the value created by the organic business through dividend payments," he said.

Increasing demand for organic milk products, and organic food in general, is leading to high prices for these products in international markets.

"While global milk prices have been volatile recently, prices for organic dairy ingredients have remained at the same relatively high levels since 2013/14, he said.

"Organic milk prices are high because consumers' appetite for organic milk products is growing faster than supply," he said.

The margins the Co-operative is achieving on its organic milk products are similar to some of its highest-earning consumer and food service products, he said.

"By selling higher-value products at premium market rates, the long-term organics strategy reflects Fonterra's priority to drive more value from every drop of milk," he said.

Grave said that Fonterra's organics business has been consistently profitable recently and had paid back the Co-operative's investment in the business.