Fonterra launches new payment for sustainably produced milk

Farmers will receive a Co-operative Difference Payment providing they meet its sustainability requirements

New Zealand dairy business Fonterra has announced a new Co-operative Difference Payment for farmer members who meet its on-farm sustainability and value targets.

The co-op says the move forms part of its strategy to respond to growing consumer demand for sustainably produced dairy. 

Through the payment, farmers will receive up to 10 cents per kilo of milk solids (kgMS). The payment will be funded through the Farmgate Milk Price. Fonterra’s board will determine the amount and targets on an annual basis.

CEO Miles Hurrell said “The total Farmgate Milk Price will remain the same across the co-operative, but the amount that each individual farm is paid will vary depending on their contribution under the Co-operative Difference, in addition to the other variables, like fat and protein, which affect the amount that’s paid.

“We’ve always paid our farmers based on the value that milk provides to the co-operative. The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.

“This payment helps us meet the changing needs of our customers, so they continue to choose our milk and enjoy dairy as a sustainable and nutritious choice.

“We want to deliver the innovation, sustainability and efficiency needed to make the most difference to our strategy and our bottom line. It makes sense to financially reward those farmers who go the extra mile to help our co-op differentiate its milk.”

In 2019 Fonterra set out the Co-operative Difference – a framework to help farmers produce high-quality, sustainable milk and prepare for any changes needed in the future.

The payment replaces the Farm Source Reward Dollars currently paid and will work on a tiered system: the more a farmer completes in the Co-operative Difference, the higher their payment.

Robert Erhard, agricultural raw materials specialist at Nestlé, which has joint ventures with Fonterra, said: “At Nestlé how milk is produced matters. Now more than ever, people expect farmers to act as good stewards of the land – safeguarding the climate, enhancing animal welfare and carefully managing water and the health of soils.”

Northland dairy farmer Terence Brocx said: “Farmers put in a lot of effort to produce the best quality milk possible. Over recent years, large numbers of farmers have spent a significant amount of time and money to improve their local environment and waterways to make their farms sustainable for the future. It’s great to see these farmers distinguished and rewarded for their efforts to produce and deliver a product that Fonterra can capture the highest value from. through The Co-operative Difference, we can get better, together.”

Mr Hurrell added: “We’ve created this with our Co-operative principles in mind. All farmers can participate in The Co-operative Difference and we’ll keep supporting them through Farm Source”.

“We want farmers looking to the future, and The Co-operative Difference encourages them to continue to focus on the things that will create the highest value milk. This helps us create higher value products that stand out in the global market for their New Zealand-ness and the sustainable way they’re produced.”

The payment will come into effect on 1 June 2021.