From June 2021, the dairy co-op will pay up to 10 cents per kilogram of milk solids if the farm meets its on-farm sustainability and value targets.
In an email to farmers on Tuesday, chief executive Miles Hurrell said sustainability on-farm was fundamental requirement for most of the co-op’s customers, who regularly checked up on progress.
“Collectively these customers represent over $2 billion in revenue annually and it’s estimated that approximately $300 million could be at risk if we do not meet their expectations.
“More and more we are seeing customers from across the globe requiring us to not only meet and improve upon their requirements, but also provide proof of completion,” he said.
“The risk is that these customers will move to competitors if they can demonstrate better performance, or a substitute for non-dairy products with lower footprints”
Hurrell said the total farmgate milk price would remain the same across the co-operative, but the amount each farm received would vary.
In addition to the farm’s sustainability performance, variables like fat and protein in the milk would also affect the amount paid.
“We’ve always paid our farmers based on the value that milk provides to the co-operative,” Hurrell said.
“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.”
Fonterra wanted to deliver on innovation, sustainability and efficiency that benefited its strategy and bottom line and a financial incentive for farmers to “go the extra mile” made sense, he said.
The co-op launched its Co-operative Difference framework last year to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.
The cash payment will replace the Farm Source reward dollars farmers currently earn through the scheme and will work on a tiered system.
The more a farmer achieves through the programme, the higher the payment will be. Precise payment structures will be confirmed over the coming months but will be no more than 10 cents per kilogram of milk solids.
Northland dairy farmer Terence Brocx said farmers put in a lot of effort to produce the best quality milk possible.
“Over recent years, large numbers of farmers have spent a significant amount of time and money to improve their local environment and waterways to make their farms sustainable for the future.
“It’s great to see these farmers distinguished and rewarded for their efforts to produce and deliver a product that Fonterra can capture the highest value from.”
