Dairy farmers can lock in up to 70 per cent of their annual milk production at a price they want to achieve.
They have until May 7 to lodge their expected price and how much milk they want to contract.
Fonterra Australia’s Farm Source general manager Matt Watt said the dairy processor had customers willing to lock in products at certain prices.
Mr Watt said those purchase prices were worked back to an average milk price.
He said dairy farmers who tendered prices at or below the purchasers’ average price would be contracted.
“They all get the same price,” he said.
If farmers’ tendered prices were above the purchasers’ average price, those tenders would not end up with contracts.
Fonterra said the fixed base milk price was a risk management tool.
Mr Watt said the system gave farmers an opportunity to reduce market volatility and allow them to gain a price they were comfortable with and falls within their budgets.
He said farmers would need to have a good understanding of the costs of their operation.
He said milk suppliers might submit a range of tenders of different volumes at a variety of prices.
The fixed price would be announced in mid-May after matching the supply and demand between farmers and customers.
Mr Watt said the fixed price system accounted for up to 10 per cent of Fonterra’s milk intake.
“What we tend to have is repeat users,” he said. “Farmers who have used it before typically go back and use it again.”
Tasmanian milk suppliers were the biggest users of the system.
Gippsland dairy farmer Stuart Griffin said he had used the fixed base price system since it had been offered by Fonterra from 2014.
The Westbury dairy farmer said certainty of price was the driving factor.
“It allows us to plan better for the season,” Mr Griffin said. “It also gives us downside protection on a proportion of our milk.
“The other benefit is that you get that (contracted) price from day one.”
Mr Griffin said his family’s operation was sometimes successful in gaining a contract while missing out in some years because their tender price was too high.
“We make a calculated decision on what we will tender and what price we’re happy to lock in at,” he said.
Source: The Weekly Times
