Fonterra co-op proposal must stack up financially

By Dairy News

Dairy farmers supplying milk to Fonterra say any proposal to them on ownership options must have a sound economic rationale.

Bonlac Supply Company (BSC) deputy chairman Aubrey Pellett says it has talked to Fonterra about its 1300 farmer suppliers investing in the co-op’s Australia’s business.

Mr Pellett said any co-op ownership proposal would need to be economically viable for farmers.

“The mindset here is different from across the ditch; in NZ farmers are encouraged to invest in co-ops,” he said.

“Farmers on both sides of the Tasman have a range of choice, so the co-op proposal should not be just emotionally attractive but financially attractive too.”

Bonlac’s milk supply agreement with Fonterra expires in December 2019; a broad concept of investing in Fonterra’s Australia operations has been discussed and Bonlac believes it is worth investigating further.

Bonlac meets monthly with Fonterra and discussions are continuing, Mr Pellett said.

“There is no proposal on the table for Bonlac to evaluate; it’s just a concept at this stage.

“The boundaries are still being worked through and our understanding is that it will be an Australian opportunity.”

Personally, Mr Pellett supports the idea of Australian farmers holding shares in Fonterra Australia.

“I would like to see membership of the co-op enable you to capture some of the value-add component of the total dairy market.

“Also there is security in farmers sending milk to a globally connected dairy player.”

But not all Bonlac members are enthusiastic about becoming Fonterra Australia shareholders.

“There’s a range of appetites out there: some farmers are very enthusiastic, some a lot less enthusiastic and others will look to wait until they can assess the opportunity,” Mr Pellett said.

Mr Pellett said BSC has 1300 suppliers today compared to 1000 two years ago.

While milk production is up in Victoria and Tasmania, farmer confidence still remains low, but has improved, he said.

“Farmer confidence across the industry is not great ….a lot of people had higher expectations of where the milk price is at,” Mr Pellett said.

“Because of what happened two years ago and the recent climatic challenges, farmers were hoping to see a higher price to restore confidence.”