By LIAM DANN
Fonterra plans to give up issuing its farmers with "peak notes", in favour of a simpler and more accurate system to signal the true cost of milk production.
Instead of having to make a one-off payment to buy the notes, farmers will in future have their payouts adjusted
to reflect their processing costs.
Peak notes are a capital instrument dairy farmers must purchase to reflect the relative cost of processing the milk they produce.
Farmers who supply more of their milk to Fonterra at the peak of the season cost the company more because of the investment needed to handle and process that milk.
In order to reflect those costs, farmers who supply more milk at the peak are required to hold more capital in the company. The system means that farmers must fill in a complicated set of accounts at the end of each season and are often faced with big one-off bills.
Before it can change from that system, Fonterra needs 75 per cent of farmers to approve the proposal at the annual meeting next month.
Farmers had been telling Fonterra they wanted things simplified for some time, said shareholder relations manager Rodd Hodge.
The new proposal will remove the burden of paperwork from farmers and mean the extra cost of capital is reflected in payouts at the front end of the process, Hodge said.
The peak note system reflected only 60 per cent of the true costs of milk production, with the difference being effectively subsidised by the co-operative.
The new system will reflect 100 per cent of the costs. That meant some farmers would pay more and some farmers would pay less, Hodge said.
"But the numbers aren't going to be that material," he said.
More than 90 per cent of farmers would see their payout adjusted by less than 4.5c.
He said the most important thing was that farmers got accurate information about what the true costs were so they could make their own business decisions about timing their peak milk flows.
