May 15, 2017

The facts - Australian milk price announcement

On 10 May 2017, Fonterra Australia announced its forecast full year farmgate milk price of $5.30 to $5.70 per kilogram of milk solids (kgMS) for season 2017/18, and that it would make an additional payment of 40 cents per kgMS in response to Murray Goulburn’s recent announcements and its decision to forgive its Milk Supply Support Package. 

Fonterra also announced it will reimburse the interest charge of 0.85 of a cent applied to this season’s milk price for the support loan.

To build a sustainable industry we need a sustainable business supporting sustainable farmers, and that’s what we’re focussing on with these announcements.

1.    Farmers need accurate price signals so they can plan ahead

It is important that dairy processors give dairy farmers accurate pricing information so farmers can do their income and business planning. That is why six weeks before the start of the new season we have announced a forecast full year milk price range of $5.30 to $5.70 per kilogram of milk solids (kgMS) for the 2017/18 season.

Providing Fonterra’s forecast full year price range now is aimed at giving our farmers guidance so that they can plan for next season with confidence. This is in line with our ongoing commitment to provide clear and timely price signals to farmers.

2.    Why is Fonterra offering a 40 cents per kgMS additional payment and who is eligible for it?

We’ve worked with the Bonlac Supply Company (BSC) on what Murray Goulburn’s decision to forgive its Milk Supply Support Package means for our suppliers, and the most appropriate way to respond.

Together, we have been very mindful of the need to be fair and equitable for all our farmers, understanding that many farmers made different decisions at the end of last season to suit their businesses. By paying this forward, farmers have the opportunity to make decisions that can maximise the benefit they receive.

The 40 cent per kgMS additional payment is available to all current, retired and returning suppliers. 

We’ve had lots of conversations with our farmers since the announcement, and overall there’s been a positive response. We know that there are some dissatisfied with the structure of our additional payment of 40 cents; however, in consultation with BSC it is designed to be fair across our supplier base. 

3.    How is the 40 cents per kgMS paid?

The payment has been tailored to suit our farmers’ cash flow and growth needs.

For our existing suppliers who have consistently supplied Fonterra since 30 April 2016, there are two options on how they can receive it:

1.    As an advance lump sum, paid by July 2017, or

2.    As a monthly payment in 2017/18 season

3.    How is the 40 cents per kgMS paid cont. ?

For retired Fonterra suppliers who left the dairy industry between 30 April 2016 and 10 May 2017 and did not supply any other company in that period, they can also receive the 40 cent per kgMS payment as a lump sum payment by 31 July 2017.

Full terms and conditions will be made available to our current, retired and returning suppliers.

4.    We’re welcoming back suppliers who have left us.

We’re contacting the farmers that supplied us on 30 April 2016 and who were affected by our price revision, inviting them to recommence supply with us. Some have indicated that they will re-join us and we welcome them back.

We will also make a special consideration for farmers that are unable to return next season due to contract terms with their new processor, and this will be determined on a case by case basis. There will be some farmers who choose not to return, and we wish them well.

5.    Why is Fonterra not forgiving its support loan?

Unlike Murray Goulburn, our support loan was optional. Around 40 per cent of our suppliers took out a loan, and there was significant variation in the amount borrowed among that 40 per cent.

There are farmers who did not take out a loan, and they were just as affected by last year’s milk price revision. If we forgave the loan, only 40 per cent of our farmers would benefit from that decision and it would be inequitable for our total supply base.

In consultation with the Bonlac Supply Company, we have worked hard to provide an additional payment that is good for all our current, retired and recommencing farmers.

On average, the 40 cent per kgMS payment will result in around $50,000 for each farmer.

6.    What does this mean for the class action against Fonterra?

We’ve had lots of conversations with our farmers since the announcement, and overall there’s been a positive response. We know that there are some dissatisfied with the structure of our additional payment of 40 cents; however, in consultation with BSC it is designed to be fair across our supplier base. 

7.    What implications does your announcement have for the Dairy Industry Code of Conduct?

We’re an active and supportive member of the committee responsible for developing and implementing the Dairy Industry Code of Conduct. We don’t want to comment on the Code implications of our announcement as it is in draft. 

However, in our view, there would be no breach as this payment relates to the 17/18 season, not the 15/16 season. We believe this additional payment of 40 cents per kgMS, available to all current, retired and returning suppliers, is the right thing to do.