Fonterra’s move to encourage suppliers to fix milk prices could be a doubled-edged sword for Tasmanian farmers.
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Circular Head dairy consultant Andrew Wright said Fonterra’s Fixed Base Milk Price initiative would give farmers certainty for a large percentage for their milk, but would also lock them out of seeking a better deal with another processor.
The Intelact consultant works with dairy farmers in Tasmania and Victoria and has also managed large dairy farms.
“I deal a lot with Fonterra suppliers,” Mr Wright said.
“In the main, based on the current and past situation, it’s a good process to have in business because you are sorted for 70 per cent [of your milk] and have 30 per cent on a floating price, so it provides some certainty,” he said.
This is the fourth year Fonterra has offered its Fixed Base Milk Price initiative, after piloting the program in 2014.
“I’ve seen farmers are more on the upside compared to those who don’t fix their price,” Mr Wright said.
In the same way that homeowners who fix their mortgage have to wear an interest rate fall, farmers who fix their milk price cannot take advantage of farmgate milk price rises.
“The down side is that farmers lock in the price. There is risk on both sides, but they’re taking what’s on offer now,” he said.
Besides not being able to earn increased rates if the farmgate price rises, Fonterra suppliers who commit to the initiative are locked in.
“If someone wanted to move to another company they couldn’t,” Mr Wright said.
Tasmania has four major milk processors in Fonterra, Murray Goulburn/Saputo, Lion and Mondel z, and a number of smaller operators.
Saputo, as the newest contender since buying Murray Goulburn’s Smithton processing plant, has already signalled its desire to increase its milk capacity in the state.
“The prices are based on global supply and demand. Fonterra knows what is going on worldwide and so too do the other dairy processors,” Mr Wright said.