Processors seek to simplify, give security on milk payments

Parmalat offers Northern suppliers a split milk price


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PROCESSORS PLANS: Big processors, Parmalat and Fonterra are seeking to woo producers, with different milk pricing plans.

PROCESSORS PLANS: Big processors, Parmalat and Fonterra are seeking to woo producers, with different milk pricing plans.

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Parmalat, Fonterra's opening milk price gambits.

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Dairy processors Parmalat and Fonterra have announced what they say are payment systems, that offer simplicity and security.

Parmalat's national milk supply manager Matt Morrow says the processor is offering a single 6/3/3 payment structure, which would help farmers who produced a significant off-peak milk profile.

"In the past year, we have witnessed, across the eastern seaboard of Australia, some of the worst drought conditions in recent memory - with a corresponding escalation in feed prices and the cost of water," Mr Morrow said.

"In the interests of providing some confidence in the face of these challenges, our aim is to provide reliable and consistent pricing signals through a simplified structure."

The structure comprises the January to June off-peak months, July-December shoulder months and September-November spring months.

The company was offering a fat to protein ratio of 1:15, as well as a four-band productivity incentive.

The incentive scheme ranges from 12 to 50 c/kg for fat content, and 18 to 75c/kg for protein, ranging from zero to greater than 23,000 kilograms of monthly milk solid production.

Split pricing

Northern Victorian suppliers would be offered a split milk pricing arrangement, based on product sold in NSW and Queensland (Domestic) and Victoria (State.)

Mr Morrow said that reflected the long term reality that milk from the region was increasingly used in the daily fresh product market, in NSW and Queensland.

Mr Morrow said Parmalat would guarantee a Domestic minimum milk price of $6.50 kg MS from July 1st 2019 - June 30th 2020.

That included a guarantee of 30c kg/MS from market support.

"If retailer market support continues as a separate distribution and is greater than 30c kg MS then the higher support figure will be paid each month," Mr Morrow said.

"In addition, the Parmalat Domestic Milk price guaranteed price will be the same for every month, a flat payment of $6.50kg/MS.

"In future years, as the Qld and NSW prices are adjusted, the domestic milk price would reflect the same movement, less any change in freight, and calculated at the start of each new season."

The Domestic milk price would be fixed for a year and would not qualify for any price movements.

"However if the Parmalat Victorian opening milk price is higher than the Domestic milk price (excluding the guaranteed 30c kg/MS market support), then the Domestic price component is adjusted to the opening price level and fixed for that year."

The remaining 50pc State milk will be paid at the Victorian milk price, plus any Market Support available to give a total milk price.

Parmalat was also offering a tenure incentive, rising to 10c/kg for fat content, and 15c/kg for protein, for farmers with five or more years continuous supply.

"Suppliers who have an established long-term relationship with Parmalat will be rewarded with an additional payment over and above our milk price," Mr Morrow said.

Mr Morrow said the company would not be offering a second "seasonal" milk system, as previously provided in Gippsland, but that did not lessen Parmalat's ongoing support and continuing investment in its Longwarry plant.

"We acknowledge that the proposed changes may not suit all suppliers, but we encourage all suppliers to examine this new model under their own specific production system."

Parmalat was also replacing the current Growth Incentive with a new program, which recognised the levels of continued investment required to ensure that dairy enterprises remained modern and innovative.

Fixed Base Milk Price

Meanwhile, Fonterra has opened applications for its Fixed Base Milk Price, for the coming season.

Farm Source general manager Matt Watt says farmers will again have the option to reduce their exposure to market volatility and assist them to budget, plan and manage profitability.

Mr Watt said similar to locking in part of a home mortgage at a fixed rate Fixed Base Milk Price enabled farmers to lock in up to 70 per cent of their season's milk at an agreed price before the season starts.

Applications are now open until May 7 and are available to existing Fonterra farmers as well as prospective suppliers who want to supply the processor in the 2019/20 season.

"The season we've just had has further highlighted the impact that variable input costs, such as feed and water, can have on a farmer's ability to plan," Mr Watt said.

"Farmers have told us that they're looking for flexible options that can help them to manage financial exposure and that having price certainty from the beginning of the season will give them more confidence to invest in cost management opportunities, such as grain contracts."

Farmers have told us that they're looking for flexible options that can help them to manage financial exposure and that having price certainty from the beginning of the season will give them more confidence to invest in cost management opportunities, such as grain contracts. - Fonterra Farm Source general manager Matt Watt

Tunbridge, Tasmania, farmer Richard Gardner milks 1,100 cows on his 2,400-hectare property and has used Fonterra's Fixed Base Milk Price since its inception in 2014 after converting 340 hectares of his farm to dairy.

"Fixed Base Milk Price lets me know what price I am going to get for my milk at the beginning of the season, and it serves a fundamental business principle of taking the risk out of my business," Mr Gardner said.

"I've come from a background of producing commodities such as wool and grain, where similar price risk management tools have been the standard for a long time, so for my dairy business, it makes sense.

"By locking in 70pc of my season's milk, I take the uncertainty out of our budget."

He said he used irrigation to take the risk out of production and fixed milk pricing to guard against market risk.

Mr Watt said coupling the Fixed Base Milk Price with other business management opportunities, would allow suppliers to secure confidence in farm margins.

"By tendering a portion of their annual milk production at a price that makes sense to their business' bottom line, they can take some of the stress out of the season," Mr Watt said.

"In addition to providing farmers with more price certainty, the Fixed Milk Price also provides Fonterra with certainty on the margins it can achieve on this milk.

"With the Australian milk pool forecast to decline further, being able to provide our customers with greater certainty in terms of product volumes will help to translate to greater returns back to the farm gate - so that's a win-win for everyone".

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