1 May 2013

Positive response to proposed milk price scheme

6:33 am on 1 May 2013

There's been a positive dairy farmer response to a guaranteed milk price scheme that Fonterra is proposing.

It's introducing a pilot scheme for the new season where farmers who choose to, can lock in a fixed milk price for up to three quarters of their milk supply, instead of relying on a forecast payout that's reviewed during the season.

The co-operative is hoping to sign about 200 farmers for the test run. They will have a proportion of their production set at the opening milk price which will be announced next month.

Fonterra says it would give farmers more certainty for their milk incomes and help them to cope with the volatile dairy commodity prices experienced in the past few years.

Federated Farmers national dairy chair Willy Leferink said it will be another useful option for farmers.

He said farming is becoming complex and that's also in the financial area.

Mr Leferink said it also means that Fonterra will know its cost of production because it will know what it is paying for the milk up front.

He said there are pros and cons for farmers.

"You might miss out on a potential windfall, but also on the other side you might have some gains if the payout goes down again for whatever reason."

Mr Leferink said it is just another tool for farmers and it could be a very good one, particularly for farmers who have a very tight ship to run because they will know exactly what they will get for their milk.

Fonterra said that like converting from a fixed to floating interest rate on a mortgage, there will be a break fee for any farmer who decides to revert back to the normal milk pricing system during the season.