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Fonterra : Winter premium set at 60c

Fonterra has upped the stakes for supplier milk by offering a premium of 60 cents/kg milksolids (MS) for standard milk supplied between June 1 and July 15 from the coming winter until winter 2009. The winter milk premium will be available only to North Island suppliers from which Fonterra currently collects milk during the winter. It is in addition to the previously announced three-year contract winter milk regime and the one-off seasonal premium of 50c/kg MS which will be paid on aggregate milk production/farm between March 1 and May 31 this year where it exceeds 128 percent of November 2006 production. The move will give most benefit to adaptable suppliers who are able to change their farming systems fairly quickly to suit Fonterra market needs. Unlike contract winter milk, the premium winter milk will not attract a transport differential ? based on distance from the manufacturing site it is sent to ? although it will apply to the same collection areas. Processing sites that will be open to accept the milk for at least some time over winter in the North Island include Kauri and Maungaturoto in Northland, Waitoa and Te Awamutu in the Waikato and Pahiatua and Longburn in the lower North Island. The timeframes for opening of sites depended on volumes of milk being supplied, said Daniel Calcinai, Fonterra?s programme manager, specialty milks. He could not disclose the present volume of milk on winter milk contracts but said contract winter milk collection lists were full. However, there might be an opportunity for extra suppliers from next season. The new regime for the allocation of winter milk contracts has been introduced to create a simpler and more coherent structure for the sourcing of milk through the winter period, more closely aligning supply with demand. ?We understand that, in order to sustainably meet the required volumes, winter milk suppliers need certain returns and the premiums we offer have to reflect this,@@ Calcinai said. ?That is why we have introduced longer-term contracts [three years], with the intention that the premiums paid will reflect the interests of all Fonterra?s shareholders.@@ Contract winter milk volumes were allocated in November 2005. Winter premiums, for milk supplied between June 1 and July 15, would apply to milk which is not supplied under any other specialty contract. If a supplier held a winter milk contract, any milk they supplied over and above the contract quota volume for the specific collection period would receive the premium and be classed as winter premium milk. The premium programme had been designed ?to provide additional flexibility to suppliers to respond to the higher value to Fonterra of milk it receives over this period which will in turn benefit all Fonterra shareholders@@. There is no minimum or maximum quantity required. But the application of the premium to winter milk in the South Island is not viable. ?While some shareholders could possibly benefit from it, the financial returns from collecting and processing this milk would not currently benefit all shareholders or the cooperative as a whole.@@ Farm consultant Chris Lewis, writing in the Baker and Associates newsletter MilkLines, said: ?Clearly in one form or another Fonterra is going to use premiums to encourage extra supply when the market demands. ?While the simplicity of a single payout applied to all milk regardless of the supply date suits most farmers, it does not suit the manufacturing and marketing arm of the business. ?For the efficient use of plant, a square supply curve is preferred, and a ?light on its feet? supplier is preferred when market opportunities present themselves and there is need for more milk.@@ D ? Premium spurs winter milkers page 68

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