Secret contracts are being pitched to dairy farmers producing at least one million litres of milk annually, but suppliers must commit to deliver at least 83,000 litres every month through to June next year.
Labelled “North Fresh”, the confidential contracts are being pitched to stop an exodus of its big suppliers moving to competitors Parmalat and Australian Consolidated Milk, which are paying dairy farmers much higher prices than Fonterra’s 2018-19 average farmgate price of $6.05/kg MS.
Fonterra is offering the big payment hike to its larger northern region suppliers to stop them defecting to other dairy companies but is also trying to woo former suppliers to return.
Contracts must be signed by the end of this month, and would be backpaid to July last year.
The contracts bind the suppliers to Fonterra for a contracted minimum monthly amount of milk until the end of next season at the $6.75 a kg price.
It is not clear what price Fonterra will pay for milk exceeding the contracted monthly minimum but the United Dairyfarmers of Victoria has been told it is $5.70/kg MS.
Fonterra would not clarify what price excess milk would be paid at.
Some farmers will receive backpay of about $50,000 a year upon signing up this month.
Over a full year, it will add at least $75,000 to contracting farmers’ pockets.
The Weekly Times understands Fonterra is also offering the higher payment to suppliers who fall short of the one-million-litre minimum production requirement, but is encouraging them to buy more dairy cows and get them in calf by April to qualify for this year’s backpay offer.
One Fonterra supplier, who did not wish to be named, said that was encouraging desperate farmers to “make crass decisions” in order to pay their bills.
“It is dangling a pot of gold in front of them but locking people into debt,” the farmer said.
“It is unconscionable conduct.”
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The North Fresh offer comes as Fonterra cut the final farmgate price to most of its suppliers from $6.20/kg MS at the start of the season to $6.10/kg MS in October and $6.05/kg last week.
In a letter to suppliers on February 11 announcing its final season price would be $6.05/kg, Fonterra Australia managing director Rene Dedoncker said “to ensure we have a sustainable business, our milk price needs to reflect what can be earned in the market”.
UDV vice-president John Keely said the Fonterra offer created a two-tier system, similar to that which operated in Queensland and northern NSW, which was not popular among those states’ dairy farmers.
“This is not good for the industry,” Mr Keely said.
“There is no incentive to produce milk above the contracted minimum.
“It all seems very reactionary to them losing milk (to other dairy processors in northern Victoria).
“They have lost a lot of milk, especially to Parmalat.”
The Fonterra supplier said it was “unfair” to offer the extra payments to its farmers in one part of the state and not in others, particularly after announcing its final payment for the season.
“They dropped the closing price from $6.10/kg MS to $6.05/kg,” the supplier said.
“We will not get another step-up for the rest of the season, no matter what the GDT (Global Dairy Trade) does.
“All the money will go towards supporting those big farmers (who sign North Fresh contracts).
“We should have all stepped up to $6.30/kg MS.
“They have kind of written off the little guys.”
Mr Keely said Fonterra wanted a flat milk supply to fill its factories.
“But the best way to do that is to pay a higher price across the board,” he said.