Fonterra’s new deal for Australian dairy producers

By Mike Stones

- Last updated on GMT

Related tags: Milk, Fonterra

More money for dairy producers, paid earlier in the season to ease cash flow problems are the aims behind a new incentive payment from Fonterra Australia.

The new incentive, called SRP Plus, will be paid over and above the standard milk price to all the company’s dairy suppliers in Victoria and Tasmania. It is intended to enhance the popular Seasonal Ratio Payment (SRP) with up-front payments.

Fonterra’s national milk services manager, Heather Stacy: “We originally created SRP to reward suppliers who produced 40 per cent or more of their milk outside the traditional spring peak. More than 400 farmer suppliers in Victoria and Tasmania have been eligible for the (Australian) $18 million Fonterra will deliver under SRP over the past two seasons.”

The new incentive plan was introduced after consultations with the Fonterra Australia Supplier Forum and the Bonlac Supply Company. Dairy producers highlighted the need for suppliers to gain access to the SRP funds earlier in the season to assist with cash flow and to remove the ‘all-or-nothing’ nature of the pricing.

Incentive payments

“We have listened to the feedback from suppliers and introduced the new SRP Plus which provides incentive payments to suppliers who don’t qualify for SRP and also helps suppliers ‘bridge the gap’ to SRP,”​ said Stacy.

The new SRP Plus will complement the existing payment programme and will be payable on qualifying milk produced outside the spring peak period, regardless of whether suppliers qualify for the SRP. The company estimates that SRP Plus will significantly increase the amount of extra incentives it pays out to suppliers, with all suppliers receiving a share.

Fonterra has also announced its intention to introduce a new structured approach to pricing reviews and announcements in 2010/11. Stacy said: “In the coming season, we will review milk pricing every two months commencing in late July. While price reviews will not necessarily lead to changes in pricing, if and when they do, any returns will be passed through to suppliers as soon as it is responsible to do so.”

The new approach will mean more clarity about pricing announcements, said the company.

Organic dairy ingredients

Meanwhile, in May, Fonterra predicted 140 per cent growth in its organic dairy ingredients business over the next five years.

The company has more than doubled its organic milk supply over the past year to help meet demand for dairy ingredients used in cheese, milk powder, proteins, and butter.

Rick Carmont, head of organics at Fonterra, said: “Although organics is a small part of Fonterra’s milk supply and production, dairy is the fastest-growing category in the international organic market, and having seen 60 per cent growth over the last two years we are well placed to build on this.”

Related topics: Fonterra, Manufacturers

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