Fonterra has announced a suit of new incentives to encourage farmers to reduce their emissions, with big offshore customers paying for an extra bonus.
Reducing emissions is part of Fonterra’s strategy, but it’s the first time it’s started offering incentives for reducing emissions, and the first time its customers Nestle and Mars have offered incentives directly to farmers.
In addition to rewarding farmers for meeting animal health, environmental and milk quality standards with up to 10 cents extra per kilogram of milk solids through its co-operative of difference framework, as of 1 June, farmers can earn an additional 1-5 cents for “emissions excellence” from Fonterra.
Emissions from farming activities minus any carbon removals from trees and vegetation grown on-farm need to be lower than the co-op’s 2017/18 baseline year in order to receive the incentive.
But the biggest reward, 10-25 cents per KgMS, is courtesy of a funding agreement with Nestle and Mars, and will go to farmers with the lowest emissions footprints in the co-op, which is 30% lower than the average farm.
As well as meeting emissions excellence requirements, the customer-funded incentives also take into account emissions associated with historic land use change and those released from peat soils.
Fonterra estimates between 300-350 farms will be eligible for the customer-funded emissions payment, and approximately 5,000 for the emissions excellence incentive.
Since the news of the incentives, Chair of the Fonterra co-operative council John Stevenson has been receiving back to back phone calls from farmers wanting to know how the scheme will work.
“They’ll be keen to understand more around what Fonterra is proposing, and they’ll be looking at the information that Fonterra has provided in terms of their own on-farm reports.”
“And then I’d say they’ll be keen to keen to engage with Fonterra to understand if they can make the required changes to achieve these incentive payments.”
Stevenson said farmers had been looking for evidence of sustainability “premiums” for some time, but the “proof in the pudding” would be whether farmers could achieve those premiums.
He said one of the premiums would be “more achievable” than the other, and the customer-driven 10-25 cent incentive would be “a stretch” for many farmers.
But the biggest question on some farmers minds is, if this is the carrot, will there be a stick?
Waihou dairy farmer and former Waikato Federated Farmers president Andrew McGiven says he doesn’t agree with the co-op’s focus on reducing emissions, but he would go for the incentive from a financial perspective.
“As long as they put it through as an incentive, not impacting on the bottom line milk price, I think that could work and I’ll explore that too.”
McGiven, who farms 510 dairy cows on his farm, says if the incentive were to be turned into a 5 cent per kilo milk price penalty, then shareholders would “fly out of Fonterra” and the co-op would “fall over”.
“I think they might start losing suppliers out of this if they want to keep going down this route, because I think a lot of farmers have just had enough of this whole greenhouse gas emissions and blaming our cows, when I certainly don’t think that’s a problem.”
Fonterra has a target of reducing on-farm emissions intensity by 30% by 2030, and an “ambition” to be net zero by 2050, saying the target is “critical” in remaining competitive and “building stronger partnerships” with customers.
Customers like Nestle and Mars are also putting the pressure on.
As part of it’s net zero aim, Mars plans to halve full value chain emissions by 2030.
By the end of 2025, Nestlé aims to reduce emissions by 20% and by the end of 2030, by 50%.
Fonterra CEO Miles Hurrell says the new incentives demonstrate Fonterra’s strategy in action, as it moves to grow relationships with customers who, “…value the hard work farmers put into producing sustainable, high-quality milk”.
“This helps us make progress towards achieving our on-farm emissions target and deliver the highest returns for our farmer shareholders’ milk.”
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