Fonterra step-up clear as milk, say suppliers

fonterra-step

The milk processor increased its farmgate milk price by 10 cents a kilogram of milk solids — 6 cents kilo fat and 15 cents a kilo protein — but it pushed the average farmgate milk price up 12 cents a kilogram of milk solids to $5.62/kgMS.

But Fonterra Australia milk supply general manager Matt Watt denied it was confusing saying it had “probably been more overt than perhaps has been general industry practice in the past” when it came to disclosing how the seasonal supply curve and composition of milk altered farmgate milk prices.

Mr Watt said milk coming in to Fonterra this season had higher protein versus fat content, which pushed up the average price it paid for milk as protein was worth more than fat at the farmgate.

But Mr McIntosh said “there was no stake in the ground” for farmers to compare average annual prices between Fonterra statements for different months or years. He said the weighted average was a “useless indicator of price” and said Fonterra needed to define its price for true farmgate comparison.

“The problem becomes further enhanced by the fact that dairy farmers use the average annual price as a price indicator,” he said.

“Ask a dairy farmer what Fonterra is paying, and they will quote you the average annual price, not the payment table.

“Every time they mention the average annual price are they talking about a different product?”

Mr McIntosh said it would help dairy farmers make farm business management decisions and better understand and compare their supply options if there was a “rock solid” price which was comparable.

He said farmers needed clear pricing signals that only changed with market movements, rather than supply curves or milk composition.

Mr Watt said the Fonterra season forecast of $5.70/kgMS — which was decreased by 10c/kgMS last week — was based on Fonterra’s internal budgeting and forecasting. He said the “payment rates themselves” won’t change but the weighted average could, depending on what happened with supply curves and milk components.

When asked if a farmer could compare a weighted average statement from earlier in the season with this statement, Mr Watt said it was always best for suppliers “to get their own income estimate.”

 

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