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Fixed Base Milk Price is a price risk management tool that lets farmers lock in a set price for up to 70 per cent of the season’s milk before the season starts, providing greater price certainty by helping to reduce farmers’ exposure to market volatility.
Now in its fifth year, interest in the initiative continues to grow from both farmers who take up the opportunity each season, as well as new participants.
Fonterra Australia’s General Manager Farm Source, Matt Watt, said that the strong interest shows that farmers are looking for greater price certainty to help them better plan.
“Certainty can be particularly important for farmers at times when they are considering business investments such as expansion or undertaking a new conversion.
“Fixed Base Milk Price is a bit like having a fixed interest rate on your mortgage versus a floating rate. It enables you to know exactly where you stand with a percentage of your production and this can help with future planning and the ability to manage margins.
“It’s another tool we’re providing under our Farm Source offering to deliver greater price certainty to farmers and so they can focus on running their own business, and complements other financial tools we provide to farmers such as the Farm Source income estimator,” said Mr Watt.
To determine the volumes and prices of milk solids under Fixed Base Milk Price, Fonterra used a tender allocation process whereby farmer suppliers offered certain volumes of milk solids at a set price, which Fonterra then worked to match to customer demand.