What the Fonterra Friday 13 announcement means in plain English

This plain English explanation is for anyone as confused as I was on Friday following Fonterra’s second announcement.

The May and June milk price is still slashed to $1.91kgMS
The prices outlined in the original announcement still apply. Friday’s announcement concerns milk to be supplied in 2016/17 but the amount you receive hinges partly on how much milk you supply in May and June 2016. Baffled? Stay with me for a minute.

Loans are still available in the same format
Nothing has changed in terms of the loans announced on May 5.

Why the latest announcement?
Although nobody came out of the May 5 announcement a winner, if your peak milk production was in May and June, you suffered far heavier losses than farmers whose herds peak in Spring.

Fonterra’s Friday May 13 announcement is designed to even out the impact.

July and August milk now attracts extra for the volumes you supplied in May and June
Fonterra will pay $2.50 kgMS extra for July and August milk in 16/17 but only for up to the same volume of milk you supplied in May and June.

Here’s an example: if Old Macdonald supplies Fonterra 10,000 kgMS in May and 10,000 kgMS in June but 15,000 in July and 15,000 kgMS more in August, she will be paid the extra $2.50 on 20,000kgMS rather than on 30,000 kgMS.

The remaining 10,000kgMS will be paid at the normal July and August rates (that’s base price + quality + production + seasonal incentives). So, Old Macdonald would find $2.50 x 10000 = $25,000 extra in each of the milk cheques that arrive on August 15 and September 15.

If, on the other hand, Old Macdonald supplies Fonterra a total of 20,000 kgMS for May and June but only 15,000 kgMS for July and August, she will still be paid the extra $2.50 kgMS on 20,000 kgMS.

The money is coming from the rest of the year
The milk price Fonterra pays farmers is made up of four components:

  • A base price paid at the same rate every month of the year for fat and protein (fat + protein = milk solids)
  • Quality incentives
  • Production payments
  • Seasonal incentives – which are apply in the “off-season” months of January to July.

To pay for the extra money announced on Friday, Fonterra will lower the base component of the milk price by 19 cents per kgMS. In other words, you may receive extra money in your August and September milk cheques but money will also be deducted every month for the whole of 16/17.

About this post and me: Milk Maid Marian supplies milk to Fonterra and this post was checked by Fonterra Australia for accuracy.

12 thoughts on “What the Fonterra Friday 13 announcement means in plain English

  1. While all those milking in May/June will be grateful for this part reprieve, the bitter taste that comes from knowing that they were initially to be made almost sacrificial cash cows for Fonterra cash grab will linger for a long time, especially with NZ’s Fonterra chief John Wilson saying to his NZ farmers that “We have been transforming our Australian business to return it to profitability and deliver returns to our New Zealand farmers. This price reduction will support those efforts.”
    Farmers who milk in May/June will probably be more grateful to all those who don’t milk in May/June who still stood up to Fonterra by voicing their outrage and either taking their milk elsewhere or promising to as soon as other processors could take it.

  2. Marian, I thought FONTERRA was everything for you. They have problems, they are kiwis. Your milk payment system seems even worse than MGs. Dairy companies are like sheep. Baffling and look after the CEOs & boards, not us. No management or worker takes a cut in pay! It all will come good in time as it did about 1974 & 82 or 83. Time. New management forgets or is not told to read the history books on the industry as they know all about it. How is Alex. Growing up quickly. Catch up with you on a DPI(?) course sometime. Don.

    • Sorry, Don, I’m not sure what you mean by that comment. No processor has ever been everything to me, nor will it be.
      Our family supplied MG for many decades until we decided to move to Fonterra ahead of the MG listing in December 2014.

  3. Still sux waiting that long, people who sold early made the right choice!
    Thanks for the plain English

  4. Sorry Marian – for your family’s and other dairy farmer’s suffering. How are you all holding up? Thank you for the plain english explanations (which I still struggle to get my head around as a non farmer) but I cannot get over the sheer cheek and possible illegality of a company who makes so much profit, then asking for money back from its suppliers – especially when the company is the one who got things so very wrong. Right up to a couple of days before things crashed if news reports are to be believed. Am I missing something here?

    • Sorry some of these posts have been quite detailed and “technical”, kayepea, because you’re not the only one struggling to get your head around what’s happening – farmers are, too.

      These pricing posts are intended to help farmers (me included) make sense of what the processors are saying because we are all being forced to make some very serious decisions based on their new payment arrangements very quickly.

  5. I don’t expect you to post this Marian, remember me, Vicki Jones, the farmer you wrote that special little blog about. I haven’t forgotten. I was not impressed.
    Did you know 5 farmers have committed suicide, what are your thoughts.
    I really can’t think of anything nice I want to say to you, except shame on you for attacking a farmer that worked hard to make sure her family wasn’t in the same boat you and so many others are now. I can now and will help farmers. Our milk price starts at $9.20kg up to $20kg, milk solids, we have secured a contract for $11.05kg last month. Hang your head in shame, you are an embarrassment.

    • Vicki, I wrote that people’s health is more important than profit, which is why finding loopholes in the law to sell risky raw milk for drinking is not only a legal issue but unethical.

      I was attacked for my stance on the basis that you were selling raw milk for the greater good, not for profit.

      It’s ironic to see you post this comment. We could all sell raw milk and rake in massive profits but it’s not all about money. They say people’s true colours shine through in times of crisis.

      For all those wondering, here’s a link to the raw milk post Vicki mentioned.

    • Fascinating, absolutely fascinating. Aren’t you the person who was flogging raw milk for profit by skirting the laws and claiming it was bath milk or something and when that child died from consuming your product and the authorities came looking you withdrew your raw milk product from market?

      And yet here you are berating others who seek to meet the market with compliant milk for causing the death of other farmers due to a poor FGMP.

      Looks to me like you put the value of someone else’s child’s life between $11 and $20 per kilogram and only care about self interest.

      WOW, fascinating, absolutely fascinating and you all wonder why us city dwellers treat farmers with a bit of distrust when you let something like this hide amongst you all.

  6. We supply MG. just found out that the new executive are not going to the board with budgets till end of June, so won’t find out till start of new season what opening price is. They’ve got to be kidding don’t they? How are we supposed to run a business when we don’t get critical price info till so late. Guess we will budget at $4.50 and cross our fingers that this gloomy figure isn’t reality.

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