Fonterra suppliers have openly questioned the company’s forecasts and plans to entice farmers back to the company, after last year’s retrospective cut in farm gate milk prices.
Fonterra executives managing director Rene Dedoncker and milk supply manager Matt Watt have been holding meetings, across Victoria, to explain the company’s forecast full year farm gate milk price range of $5.30 to $5.70 a kilogram/milk solids (kg/MS) for the coming season.
The company has also offered an additional payment of 40c a kg/MS, payable in 2017/2018.
Mr Watt has told suppliers, Australia milk production in February decreased 10per cent, compared to the same month last year.
“Excluding the impact of leap year in 2016, production was down seven pc,” he said.
“Production for the 12 months to February was down eight pc on the previous comparable period.”
But farmers at the meetings said there was still considerable anger, about Fonterra’s failure to pay back money, they said the company owed them for the 2015-16 season.
Lockington farmer Paul Weller said Fonterra executives had claimed they would get back half of the 116 farmers, who had left the company since the price cut.
“They were bandying around the figure that 116 had left; they had spoken to them all and said 50 or 60 had shown some interest in coming back.”
The retrospective price cut, in May last year, saw prices fall $5.60 kg/MS to $5.
It followed Murray Goulburn’s profit and milk price downgrade.
Fonterra offered loans of up to 60c kg/MS, to be repaid from the 2018 financial year.
Mr Weller said he did not think the 40 cents would be a premium, above what processors such as Bega and Warrnambool Cheese and Butter (WCB) would pay.
“I don’t know whether it’s going to help restore trust, but it’s going to help them have a competitive price this year,” Mr Weller said.
He said the decision to quote a closing price was positive.
“I think it’s good to give farmers an indication of what they are thinking next year’s final price will be.”
Fonterra’s collections for the 10 months until the end of April reached 106 million kg/MS, two million less than the same time last year.
There was a six per cent uptick in April, to nine million kg/MS, mainly due to increased supply from third parties.
Mr Watt said Fonterra recognised there were mixed views, but, on balance, the majority of farmers were comfortable with the additional 40 cents.
“In consultation with the Bonlac Supply Company, we worked hard to determine the fairest and most equitable way forward,” Mr Watt said.
“To be clear, our priority is to our current, returning farmers, and retired farmers.
“We believe that we can achieve most of our volume requirements through current and returning suppliers and expected seasonal growth.
He admitted there would be a shortfall of volume to optimise our product mix, and to close that gap Fonterra would require new suppliers.
“Prospective suppliers are put on a waitlist.
“Once all current and returning suppliers have been accommodated, we will then work through the waitlist until our capacity is reached.”
Mr Watt said, with Stanhope coming on line soon, Fonterra did need to grow its milk pool.
“To realise the benefit of higher global cheese prices, we need to have that factory filled.
“By rebalancing our product mix and moving our farmers’ milk into cheese and away from powders, we have the ability to pay a sustainable milk price, and every farmer shares the benefits.”
But Rochester’s Marshall Jacobs, who attended one of the northern supplier meetings, said many farmers were still very angry about the price cut.
“From what I can gather, what they were saying was ‘how naughty we were, we did the wrong thing, but this is what we are going to fix it’,” Mr Jacobs said.
“They are expecting everyone to let it go, draw a line in the sand, and move forward, but farmers can’t do that.”
Instead of asking farmers to let the matter drop, Fonterra should be asking how much producers should be paid back.
He said there was also anger that the additional 40c applied to all farmers.
“Everybody is eligible for that, if you come from Murray-Goulburn this year; you are going to get that.”
“It should be 50 cents for us and 20cents for the newcomers, so farmers can see there is a difference,” he said.
Mr Jacobs said he was now milking only 42 cows.
“We went from having young stock, a herd of 420, and building our future, down to 100,” he said.
“I don’t care what Fonterra pays me next season, it more about the morals of what they did to me.”
Noorat Fonterra supplier Con Glennen said he understood why Fonterra had made the offer it did.
“It’s positive for us, going forward,” Mr Glennen said.
“We can make more milk, if you can give us more money for it.”
But Gippsland supplier Marian Macdonald said the closing price could not be relied upon.
“With the benefit of experience, the forecast price is not worth a lot.”
The reason behind the decision is because production in the north has dropped dramatically just when Fonterra is opening a new factory that needs to be filled.”
“The 40 cents is a recruitment strategy.”
“It is pretty clear to me that competition in the Australian dairy sector is not functioning properly.
“What we need, if we are to see a return to confidence and growth, is transparency.”
“We are forced to choose a processor and are effectively locked in there for a whole year, without knowing what price we are going to get.
“I don’t think that would be acceptable, in any other industry.
“We need some real system change, rather than tinkering around the edges.”