Paying a premium

By Geoff Adams

A decision by dairy processor Fonterra to offer a premium payment to suppliers of its Stanhope factory has opened up a debate about differential pricing.

To try and lift milk supply, Fonterra is offering a 70¢/kg extra payment to northern Victorian suppliers who sign up to a deal requiring a commitment on volume and quality.

Northern Victoria and the southern Riverina have been hard hit by rising feed and water prices, cutting milk supply by about 23 per cent in December compared to the same time the previous year, according to the latest Dairy Australia figures.

Fonterra acknowledged it was not getting enough milk for its recently upgraded Stanhope factory.

Fonterra Australia managing director Rene Dedoncker said the company consulted a group of farmers in the region to ask if the company should take on new contracts, and offer a premium to compensate for high input costs, or reject the contracts.

The answer was to offer a price incentive.

Mr Dedoncker said uniform pricing was the traditional way of doing things in a market that was reasonably stable.

‘‘But there’s a whole new normal now,’’ he said.

‘‘We don’t have enough milk. If we want to survive we can’t do things the way we have always done them.’’

Mr Dedoncker, in an interview with Country News and in comments made at the Australian Dairy Conference in Canberra last week, opened up the possibilities of different pricing for different regions or factories.

Asked if he was worried about explaining it to all suppliers, he said he was trying to be open.

‘‘It’s probably not for everyone. The farmers who can’t be part of that are not pleased and we will be talking to them.

‘‘I don’t think we will see milk return at the rate that it left, so I don’t think it will be a short-term arrangement.’’

Mr Dedoncker admitted the company had been struggling to get the throughput it required at Stanhope.

And the company has been losing milk to processors in northern states.

‘‘This is what we never thought possible years ago, now it is economically viable,’’ he said.

‘‘With all that pressure we don’t have enough milk to make ends meet.’’

Saputo chief executive officer Lino Saputo Jr said he was opposed to differential pricing but the company could offer some sort of support to its suppliers in a different way.

‘‘We need to be careful about special deals we make,’’ Mr Saputo told Country News.

‘‘We have one class of farmers so we will not be doing any special deals in any way, shape or form.’’

UDV president Paul Mumford noted Fonterra was trying to support its suppliers under seasonal stress, but he urged caution with differential pricing systems.