Fonterra farmers who produce sustainable, high quality milk will be eligible next year for a new payment of up to 10 cents per kg of milksolids.

The dairy giant says farmers would be eligible for their new "Co-operative difference"
payment if their farms meet its on-farm sustainability and value targets.

The strategy was aimed at "adding value" to New Zealand milk and responds to increasing demand from customers for sustainably-produced dairy, Fonterra said.

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The payment will be funded out of the farmgate milk price.

The total farmgate milk price will remain the same across the co-op, but the amount that each individual farm is paid will vary depending on their contribution under the plan, in addition to the other variables, like fat and protein, which affect the amount that is paid.

Fonterra has always paid its 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," Fonterra chief executive Miles Hurrell said in a statement.

The precise payment structure will be confirmed over the next few months following discussions with farmers, but it will be no more than 10 cents per kg, he said.

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"When you look at where the world is going, more and more customers are demanding to know where the product is coming from, how the animals have been treated, how milk is produced, and the feeds that they have been fed," he said.

"It's around making sure that you have the right animal practices in place, the way that you work with your staff, and your environmental practices behind the farm gate," he said.

The criteria would include water protection, riparian planting and milk quality.

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"It's using an element of incentives, rather than the penalties that we may have used previously when certain criteria were not met," he said.

Hurrell said the new payment was a way of rewarding an increasing number of farmers who were going "above and beyond" what was required, in response to market signals.

The new regime becomes effective from June 1 next year.