Thursday, 11 May 2017 12:27

Will 40c/kg wash with Fonterra suppliers?

Written by  Stephen Cooke
Rene Dedoncker Rene Dedoncker

Fonterra will pay an “additional” monthly payment of 40c/kg milk solids on top of a forecast 2017/18 milk price of $5.30-$5.70kg/MS in a bid to retain milk supply.

The additional 40c/kg will be available to all current, retired and recommencing suppliers, who were forced to take a pay cut last season after Fonterra severely and unexpectedly dropped their prices.

Unlike Murray Goulburn, which will reimburse money to existing and retiring suppliers clawed back from its ill-advised ‘Milk Supply Support Package’, Fonterra suppliers that took money under the ‘Support Loans’ package will have to repay this.

When MG announced last week it would repay funds paid by existing and retiring suppliers under the clawback scheme, in a move to stem a massive fall in supply, past form suggested Fonterra would follow suit.

After all, Fonterra followed a poor decision by Gary Helou and the Murray Goulburn board to pay more than the global market suggested was sensible. It followed them all the way over the cliff.

The Australian branch of the New Zealand co-op said it was obliged to do so, under the ‘Bonlac Milk Supply Agency Agreement’, which means it has to match or better the price offered by MG.

When Helou was sacked by the board – some of whom remain today despite their part in overseeing the colossal failure – MG initiated its infamous pub test-failing ‘Milk Supply Support Package’, or clawback. MG officially dropped the price, but paid more, which suppliers had to pay back.

Fonterra subsequently dropped its price a week later for the remainder of the 2015/16 season and announced its own clawback scheme – the ‘Support Loans’ package. About 40% of suppliers took this package which provided money (with interest) that would need to be repaid from 2018.

When Murray Goulburn announced last week it would repay funds paid by existing and retiring suppliers under the clawback scheme, in a move to stem a massive fall in supply, the ball was placed back in Fonterra’s court.

Instead of cancelling the scheme and repayments for those who have taken it, or lifting the price paid for the 2015/16 season for those who hadn’t, it has essentially dangled a carrot of 40c/kg on a 2017/18 forecast price it has set itself, to retain supply.

“We believe this payment is the right thing to do,” Fonterra Australia MD Rene Dedoncker said, eight days after MG announced its scheme, “and we’re committed to ensuring our farmers are better off with us.

“We said that we would consider Murray Goulburn’s recent announcements including the decision to forgive its Milk Supply Support Package.”

Bonlac Supply Company chair Tony Marwood (in a media release sent at the same time as Fonterra’s) said the forecast closing price range, and the 40 cent payment, “showed that Fonterra was listening to farmers, and was committed to rebuilding confidence in Australian dairy.

“We have been working with Fonterra on what Murray Goulburn’s decision to forgive its Milk Supply Support Payment loan package means for Fonterra’s Australian suppliers, and the most appropriate way to respond.”

The initial response from current and former suppliers hasn’t been kind. Time will tell whether genuine anger in the farming community influences a change in Fonterra’s thinking, as it did with MG.

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