Fonterra to pay for milk based on sustainable farming
Fonterra farmers producing sustainable, high-quality milk will be eligible for a new payment, as part of the company’s strategy to add value to New Zealand milk. From 1 June 2021, Fonterra will introduce a Co-operative Difference Payment of up to 10 cents per kilogram of milk solids (kgMS) if the farm meets the Co-op’s on-farm sustainability and value targets. This is in response to increasing demand from customers for sustainably produced dairy. The payment will be funded out of the Farmgate Milk Price.
Fonterra CEO Miles Hurrell said the total Farmgate Milk Price will remain the same across the Co-operative; however, the amount each individual farm is paid will vary, depending on its contribution under The Co-operative Difference, alongside other variables such as fat and protein.
“We’ve always paid our farmers based on the value that milk provides to the Co-operative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably,” said Hurrell.
In 2019, Fonterra launched The Co-operative Difference — a straightforward framework to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.
“We want to deliver the innovation, sustainability and efficiency needed to make the most difference to our strategy and our bottom line. It makes sense to financially reward those farmers who go the extra mile to help our Co-op differentiate its milk,” said Hurrell.
The payment will replace the Farm Source Reward Dollars farmers currently earn through The Co-operative Difference and will work on a tiered system. The more a farmer achieves in The Co-operative Difference program, the higher the payment will be. The precise payment structure will be confirmed over the next few months, following discussions with farmers, but will be no more than 10 cents per kgMS.
Nestlé’s Robert Erhard said the company values how milk is produced. The amount and targets of the Co-operative Difference Payment will be set annually by the Fonterra board. While the total amount available to be paid to farmers will not change, a proportion of the Farmgate Milk Price will be available to be redistributed farmers to better reflect the value of the milk from individual farms.
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