In October final retro accounts and bank deposits, Fonterra’s dairy farmers have their first results of the Co-operative Difference payment within a 10c/kg range.
More than 6000 will be pleased to have achieved all or part of the full entitlement – but 2450 did not qualify and received only the base payment of $9.23.
Despite all of Fonterra’s preparation and explanation over the past 18 months, nothing speaks louder than payout numbers.
For the 2021-22 season, the average farmgate milk price is $9.30/kg for the co-operative’s collection of 1478 million kilograms, being $13.7 billion in total.
One cent of payout represents $15 million and 10c is $150m, which is the scope of the Co-operative Difference programme and its monetary outcomes.
Te Tihi, the summit of the mountain, was achievement level three, for which 638 farms qualified; Te Puke, the mid-point level two, was met by 4522 farms; Te Pūtake, the start of the journey, was the achievement level for 1155 farms.
Level one was worth 7c/kg for the sustainable achievements, across all milk supplied during the season, while level two was worth an additional 3c for milk quality excellence, for all milk supplied that met the milk quality excellence standard.
Across three levels, 6315 farms achieved Co-operative Difference, which Fonterra said was 72% of its total supply number of 8770 farms.
Therefore 2455 farms did not qualify in the first year and received only the base payment.
If all 8770 farms had achieved Co-operative Difference in entirety, including the milk quality standard across all milk produced, everyone would have received pretty close to $9.30/kg.
In the same way that the co-operative makes unders and overs payments for fat and protein, the Co-operative Difference is about re-distribution of a small part of the total $13.7b available for payout.
Fonterra has not retained anything of that amount of money.
Michael Hide, general manager, sustainable dairying, said the Co-operative Difference payment is fully funded out of the farmgate milk price that is set under the heavily scrutinised milk price manual.
The co-operative approach is that all the aggregate milk price is paid out to farmers and therefore Fonterra is unable to pay incentives to just some of its farms in the way that Synlait and Miraka do.
Anything that isn’t paid out to non-qualifiers goes back into the base price and is therefore shared equally across all supply farms.
He said the Te Pūtake level of 7c contains the aspirational part of the programme, to encourage progress and compliance in the four key areas of the environment, co-operative and prosperity, animal welfare, and people and community.
“This is the level containing the most impacts on farmers in terms of sustainability and we want to encourage early adoption and improvement.”
The Te Puku level of 3c is aimed at milk quality consistency, for a qualifying period of 30 days or more.
The highest Te Tihi level provides additional non-financial recognition for farms delivering excellent milk quality for at least 90% of their season. Their names are published in the Fonterra Annual Report.
“Co-operative Difference is designed to reward those who achieve milk quality excellence aligned to the expectations of customers and the community,” the report said.
“Those farmers who increase the average quality also improve the value of everyone’s milk.”
The 10c payment remains in the Co-operative Difference scheme for the current season and Hide said some improvements in reporting and on-farm assessing will be introduced, learning from the lessons of the first season.
“We want to make everyone aware of what they have to do and when to do it by,” he said.
“Last season’s achievement of 72% of our farmers is an outstanding level of participation and an encouraging indication that farmers are willing to step up and make changes on farm in a way our customers want.”
Among the measurements of the first season were 71% of farms with farm environment plans, 6651 animal welfare plans and a 12% reduction in purchased nitrogen surplus.
However, at a suppliers’ meeting in Northland, farmers learnt that only 40% of the region’s farms achieved the Co-operative Difference, including only 10 at Te Tihi level.
One farmer who attended said news of the low achievement was demoralising.
All Fonterra farmers have received Payment Summary Notes for the 2021 season, to explain their own payout variations based on the formula A + B +/- C +/- D.
A + B is the protein milkfat ratio, which is an average of 0.7820.
If a farm produced a higher proportion of protein to milkfat than the ratio then additional payment is made. A lower proportion resulted in a lower payment.
C is the volume adjustment, compared with the co-operative’s average 9.01% and 2.97c a litre.
A farm with a milksolids percentage that exceeded the average received an additional payment and for those below the average a deduction was made.
D is the Co-operative Difference payment explained above.
Hide said the protein milkfat ratio and volume adjustment are relatively small in comparison to the Co-operative Difference payment.
Premiums for organic conversion, Stolle, A2 protein and winter milk are shown separately and if a farm had any milk quality issues there would be a negative adjustment or penalty.
