Fonterra defends opening price statements

UDV president, Adam Jenkins, accused Fonterra of announcing “an inflated opening price, which does not reflect the current market price.”

The company released an opening price of $5.30 per kilogram of milk solids (kg/MS) and an upgraded forecast full year range of $5.40-$5.80 kg/MS for the season.

“We dispute the claim made by UDV regarding our opening price,” Fonterra managing director Rene Dedoncker said.

“We have been clear that our opening price is $5.30 kg/MS for season 2017/18, and that this price is reflective of the current market, our improved product mix and what we can earn in it,” he said.

“We have also been clear that our 40c additional payment will be paid on top of our opening and closing price, and will be itemised as a separate line item in our farmers’ statements.”

Mr Dedoncker also confirmed the 40c would be paid to new suppliers.

“When coupled with our price, it means Fonterra farmers will receive $5.70 kg/MS, with a forecast closing price range of $5.80 to $6.20 kg/MS,” Mr Dedoncker said.

“The reason we’ve itemised it separately is to be very clear with our farmers that our base price is supported by our product mix and the market and the additional 40c payment is funded through the strength of our business.

The clarification followed claims by some Fonterra suppliers that the pricing structure, including Rochester’s Marshall Jacobs, was “smoke and mirrors”.

“As far as paying back debt, does it actually equate to $5.70?” Mr Jacobs said.

“None of that is going to become really clear, until we get the field officers out there and have a look.”

He said farmers were likely to shop around – “we know there is no transparency in milk pricing, you have to deal directly with the company, and see how it pans out.”

While MG’s price seemed extremely low, it was favourable for spring calvers.

“I think you have to do all your homework, with every company, even MG,” Mr Jacobs said.

“Fonterra needs to stop saying it’s ‘this price, plus a bonus, less a debt’ – it’s either $5.70 in your hand, or whatever it is.

“They have just got to be straight up, farmers don’t care about this bonus, that bonus, minus the debt, we just want to know what’s in our hot little hand.

“With Bega and Warrnambool Cheese and Butter (WCB) nothing is hidden, they are not trying to sell us a dummy.

“Fonterra still has got a long way to regain trust.”

Mr Jenkins went further, saying the comments were misleading.

“At a time when the dairy industry has committed to rebuilding trust along the supply chain, they are unhelpful in our effort to create a transparent milk price for the dairy industry.”

Mr Jenkins said the statements showed inconsistencies in behaviour by Fonterra and BSC, after neither company recognised the benchmark return set by Murray Goulburn last year at $5.53/kgMS.

“Fonterra wants to give the appearance that they are offering a more attractive price than any of the other processors at $5.70/kgMS, but it’s simply not true and Fonterra and BSC need to make that clear,” he said.

Farmers also expressed anger at what they said was a lack of transparency, with one saying the payment was actually $4.91 kg/MS.

South Australian supplier Lorraine Robertson said it appeared to her Fonterra’s price was actually 25c less than other processors.

“With the weighted average, we normally get 15-20c more - in this current season, they take 20 cent off, so we are only getting $5.01,” Ms Robertson said.

“They have done that with next season as well, if they can get away with it once, they will do it again.

“Far fewer people are getting above average and more are getting the lower price – that’s rather horrific.”

She advised farmers to get an income estimate, before they decided who they were going to supply.

“Smoke and mirrors, I think it’s called.”

Others were more positive about the opening price.

Moama farmer Paul Weller said the price was “a lot better than last year.

“With Bega being on $5.50 you would have to see what the fine print around the two, to see what the difference is.”

He said while Fonterra would be very competitive, this season, it would be interesting to see what happened next year, “if they don’t have the 40c.”

Noorat supplier Con Glennen said it appeared Fonterra was going to pay a competitive price.

“As much as I don’t like them, they are as good a paying option for us, on our curve, as last year,” Mr Glennen said.

Many farmers still faced hard decisions, with significant numbers still seeking to exit the industry.

“There’s people want out of this game, not in,” Mr Glennen said.

Processors, particularly MG, would struggle to find supply.

“Someone is going to miss out on milk and unfortunately it looks like MG - there is a lot of stainless steel, a lot of capacity, and a lot of people want out of the game.”