A big incentive for dairy farmers to convert is the organic milk price forecast sitting at $13.10 a kilogram of milksolids for the 2025-26 season, compared with the expected payout midpoint of $9/kg.
Organic milk products are in high demand overseas and the dairy giant has set a goal of processing at Stirling, near Balclutha, from the 2028-29 season.
More farmers have put their hands up than expected from Southland to Canterbury and the co-op expects to have a good indication in a few weeks and confirmed numbers by May.
Among them are regenerative, corporate and mainstream farmers as well as organic suppliers from Open Country Dairy which is exiting organic processing.
Organics general manager Andrew Henderson said they appeared to have passed a target for a minimum volume of milk to expand organic milk production in the South Island.
"The interest we’ve had over the past week, particularly with some meetings down in Gore and Leeston and Invercargill, has already exceeded those volumes so we’ve had a really strong first response from farmers which is great. Time will tell as to which of those will decide to actually sign up."
Application documents sent out this week will give the co-op a firmer view when they are returned.
Mr Henderson said interested farmers included a group of regenerative suppliers pushing for organic production for many years as well as large corporate farmers.
"With an organic milk price at $13.10/kg at the moment commercially it could be quite attractive so there are a number of drivers there... It needs to make business sense, but all of our farmers have a mindset they want to continue to drive and be more regenerative and more sustainable."
In the North Island, state-owned farmer Pāmu has converted a range of farms to organics as well as staying with conventional dairying.
A similar mix could play out among multi-farm owners in the South Island.
Fonterra has a range of export markets varying in their organic certification criteria, with the United States and Canada requiring a three-year conversion of land and, within this, a year of cow conversion.
Regenerative farmers who have farmed with organic-approved inputs the past three years could backdate some of this.
The plan was to focus on organic cheese and Stirling was well suited to manufacturing smaller volumes efficiently.
"Assuming we move ahead with it and once we get Stirling established, we will obviously look at what other options there are in the future.
"From the South Island milk, we would look just to make the organic cheese at Stirling. We have had some interest from customers about buying liquid milk so that’s an option."
Fonterra’s organic business has been running since 2002, with Hautapu, Morrinsville and Waitoa UHT producing most of the co-op’s organic dairy products. Supplier numbers in the north have increased 15% the past five years to about 110 farmers.
Much of the organic cheese production is expected to be shifted to the South Island with the milk used from that going towards wholemilk powder or milk proteins.
Mr Henderson said there was strong demand overseas for organic cheese in markets such as China, the US and some European countries.
"We are probably able to supply about 50% of our demand at the moment across all of our products, but cheese equally so and we are seeing that demand continuing to grow."
Consumers were prepared to pay a premium for its health and wellness value, and this was being matched more lately for its sustainability attributes, he said.
"Underneath that you are seeing animal welfare being a major driver for buying organics as well. Particularly in the US the organic farming systems where the cows are outdoors, as they are in New Zealand, a lot of consumers prefer that to cows being inside for the majority of their lives."
A sign of future growth is the numbers of millennials and Gen Z and Y consumers buying organic brands.
"We have got cheese that has shown strong growth [in customers], butter incredibly strong growth, skim milk powder is growing and that’s going into paediatrics, but we are actually seeing a lot of those paediatric customers shift towards wholemilk powder."
Demand is also up for organic milk protein concentrate, whey protein concentrate and UHT into China.
He said there were still strong margins to be made for Fonterra after a $13.10/kg payout.
