Fonterra launches 'mymilk' South Island subsidiary

Lukas Paravicini, chief financial officer of Fonterra, says the reduced payout will lead to a difficult year for the co-operative's suppliers.

Fonterra said it had launched a separate milk sourcing subsidiary - mymilk - to grow its market share in the South Island.

The unit will initially invite applications, from farms in the Canterbury, Otago and Southland regions that are not currently supplying Fonterra, for one year contracts, renewable for a maximum of five years, without the obligation to purchase Fonterra shares.

Mymilk suppliers can apply to join the co-operative, purchase shares and supply Fonterra directly, at any time.

Fonterra chairman John Wilson said the scheme was aimed at those farmers who were not immediately able to buy shares in Fonterra.

"We know there are farmers who support the co-operative model, but are at the stage of development where sharing up is currently beyond their financial reach," he said in a statement.

"Providing a different pathway of supply through mymilk to farms not currently supplying Fonterra enables farmers to ultimately weigh in behind the co-operative model," he said.

Wilson said it was important in an increasingly competitive milk sourcing environment that farmers could support Fonterra and then apply to become shareholders in the wholly owned New Zealand Co-operative in time.

Contract prices paid by mymilk would be competitive, but Fonterra said they would not be more than the farmgate milk price paid to Fonterra shareholders.

"Mymilk suppliers will have the opportunity to experience first-hand a number of the benefits the Co-operative has to offer and we are confident this will encourage them to become shareholders during the five year period," chief executive Theo Spierings said.