Farmers offered guaranteed milk payout

Photo / Christine McKay

Fonterra's farmer members will be offered two opportunities to lock in the price paid for a percentage of their milk in the 2014/15 season following a successful trial run of the scheme in the current season.

Fonterra said a guaranteed milk price (GMP) would be offered on 60 million kg of milksolids in two tranches. Applications to supply 40 million kg would open in June, offering a 12 month GMP.

In December, applications would open to supply 20 million kgMS with a six month GMP offered on production from December 1.

The guaranteed milk price for the 2014/15 season followed a successful pilot involving 328 farmers who supplied 15 million kgMS for a guaranteed price of $7 per kg this season.

The $7 price was based on the opening forecast for the season. The pilot attracted such a high level of support that applications were received to supply 37 million kg. Participants were scaled back to 40 per cent of their original application.

Chief Financial Officer Lukas Paravicini said positive feedback from the pilot showed the GMP is seen as a useful tool for farmers to manage price volatility and to secure income certainty.

Having an opportunity to apply for the GMP in December meant farmers could follow the farmgate milk price trend for the first half of thefinancial year before deciding on whether to lock down the price for some of their production in the second half.

"GMP has given them certainty around a proportion of their income for this season,'' he said in a statement.

"Having certainty means they have been able to confidently make decisions around servicing debt or making capital investments on farm especially when prices are volatile and this certainty comes regardless of the final milk price,'' he said.

He said the GMP also gave Fonterra some certainty. "We can lock in longer-term contracts with customers at a set price and attract a premium knowing there will be no risk with those contracts from price volatility,'' he said.