Fonterra is calling for farmers interested in joining a pilot guaranteed-milk-price scheme aimed at smoothing the rollercoaster international-commodity-price ride when it comes to managing their farm business.
The scheme would allow farmers to lock in a milk price announced at the beginning of the season for up to 75 per cent of their milk supply to the company.
The pilot, which needs 100 to 200 farmers, would kick off in the 2013-14 season which starts on June 1.
The company said market volatility was «a fact of life» and, while many farmers could live with it, there were times when they would like more certainty, such as when they were considering investing, expanding or doing a conversion.
Managing director of group optimisation and supply chain Ian Palliser said a guaranteed milk price would also benefit the co-operative, New Zealand’s biggest company and the world’s leading dairy exporter.
Fonterra would know what a certain proportion of milk would cost for the season, which in turn would provide the company with a selling tool to customers who also wanted price certainty.
The idea, first floated at Fonterra networkers’ conferences last year, is supported by farmer watchdog the Fonterra Shareholders Council.
But chairman Ian Brown said that, as with floating or variable interest rates versus fixed rates, there were downsides to the idea and farmers’ needed to have their eyes open to the risks.
He emphasised it was a pilot scheme, which would involve a farmer locking anywhere between 10 per cent and 75 per cent of projected supply for the season into a fixed price. The risk was that the milk price might go up during the season.
However, for a young farmer it was another tool to manage risk, Brown said.
He said only 1 to 2 per cent of Fonterra’s 10,000-plus farmers were expected to buy into the scheme.
Palliser said that as with converting from a fixed to a floating mortgage interest rate, there would be a break fee to pay if a farmer reverted back to the normal milk payout system during the season.
The pilot would be monitored over the season and farmers’ informed on the benefits and risks encountered.
Source: Stuff
