Fonterra to provide funding to struggling dairy farmers

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: Dairy farmers, Milk

New Zealand dairy cooperative Fonterra has announced that it will lend NZ$15m to its 50 percent-owned subsidiary RD1 in order to make more interest-free credit available to cash-strapped dairy farmers.

Dairy farmers around the world have been hit by low milk prices as oversupply has caused a global glut, but the dairy giant has previously opposed providing financial aid to farmers on the grounds that it damages market competition. In May, Fonterra revised its new season forecast payout for milk solids downwards from NZ$5.20 a kilo to NZ$4.55 (approximately €2.34 to €2.04 at today’s rates).

In response to lower milk prices, the US and the EU have returned to systems of partial subsidisation for dairy farmers to help them stay in business – a move that Fonterra has repeatedly condemned.

Potential for criticism?

However, it is thought that the cooperative, which is owned by more than 11,000 dairy farmers, could face criticism over the move from some farmers unwilling to subsidise others who may have taken on more risk than they can manage.

And Fonterra has been particularly vociferous over the issue of providing support to dairy farmers. Following the extension of the US programme, Kelvin Wickham, managing director of global trade for Fonterra, criticised America’s stance on subsidies, claiming the DEIP (Dairy Export Incentive Plan) could prove extremely damaging to the wider global dairy market for a ‘relatively small’ effect on US milk costs.

“This is bad news for the market and bad news for our farmers in New Zealand who compete internationally with no support or subsidies of any type,”​ he said at the time.

Fonterra’s director of milk supply Barry Harris said on Friday: “It’s a tough time for our farmers and we have been looking at every avenue we can to help them, particularly in finding ways to cut costs and manage cash flows while continuing to keep their farms productive. This opens up another option and some flexibility for farmers needing essential supplies to keep their farms running in what is going to be a difficult season for many.”

The additional funding (equivalent to about €6.75m) will be made available interest-free to the cooperative’s New Zealand dairy farmers, although the terms of the offer to farmers are yet to be announced.

Fonterra said that the $15m loan will be repaid by RD1 by the end of April next year.

Related topics: Markets, Fonterra, Ingredients

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