Fonterra Cooperative Group recently announced it will pay farmers more for sustainable, high-quality milk, but it turns out it's more of a stick than a carrot.

The dairy exporter is introducing a cooperative difference payment of up to 10 cents per kilogram of milk solids if a farm meets on-farm sustainability and value targets from next season, kicking off on June 1, 2021.

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Fonterra is forecasting it will pay its farmers in a range of $5.40-to-$6.90/kgMS in the current season.

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"It makes sense to financially reward those farmers who go the extra mile to help our co-op differentiate its milk," said Fonterra chief executive Miles Hurrell.

The payment, however, is not in addition to the milk price normally paid to farmers.

"The total farmgate milk price will remain the same across the cooperative, but the amount that each individual farm is paid will vary depending on their contribution under the cooperative difference," said Hurrell.

Tick the boxes... or else

"Basically it's a case of if you tick all the boxes then you get the full payment, if you don't then you are penalised - so not really a bonus for those that go above but a penalty for those that don't achieve," said Andrew Hoggard, national vice president of Federated Farmers.

Under the system, the more a farmer achieves in the cooperative difference programme, the higher the payment will be.

The precise payment structure will be confirmed over the next few months following discussions with farmers, but will be no more than 10 cents/kgMS for the 2021/22 season, Fonterra said.

The amount and targets will be set annually by Fonterra's board.

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A spokesperson from Fonterra said the amount each farm is paid for milk is influenced by a number of factors specific to that farm, not just the cooperative difference payment.

"A farm's level of achievement under the cooperative difference will influence how much they are paid by up to 10 cents in the 2021/2022 season, but due to the other payment parameters that may or may not result in their overall price being lower than the average farm-gate milk price."

Hoggard said it's important to see how it plays out, but he's concerned it might become a box-ticking exercise and could be rather subjective.

He added that he feels Fonterra "should have consulted more on this with farmers to ensure that they do have it right and are utilising all info sources."

Fonterra launched the cooperative difference programme last year to "help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future."

- BusinessDesk

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