Fonterra price scheme proves popular

Fonterra's guaranteed milk price (GMP) pilot scheme for the current season has proven so popular that it has required scaling, the co-operative dairy giant said.

Fonterra said 328 farms have applied to supply 37 million kg of milk solids for the scheme but that it had maintained the size of the pilot at the targeted 15 million kgMS, about one per cent of its total milk supply.

As a result all applicants were scaled to 40 per cent of their requested kgMS, with a minimum threshold of 10 per cent of a farm's production.

Fonterra's director of commodity risk and trading, Bruce Turner said the uptake from farmers was a positive result.

"It has given us a broad cross section of farmers from right across the country who are at varying stages of their farming operations," Turner said in a statement.

"This will allow us to give comprehensive feedback to all shareholders on the benefits and the risks, and this way our farmers can see if it is something that might suit them in the future," he said.

The pilot was launched earlier this year, giving farmers the opportunity to lock in between 10-75 per cent of their milk supply at the opening season's milk price forecast, which was $7.00 per kg.

Turner said Fonterra recognised that every farming business was different.

While most farmers could live with the market volatility, there were times when some farmers would prefer more certainty, he said.

"It enables farmers to know exactly where they stand with a percentage of their production and this can help with future planning," Turner said. GMP also allowed the co-op to lock in fixed contract prices with its customers.

"This means even if commodity prices drop and the milk price also drops, those customers will continue to pay the fixed price for their products, which supports the GMP price and means there is no risk to the Co-op," he said.


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