Aussie farmers being paid too much: Fonterra boss

31 Aug, 2015 06:10 AM
We need to have an honest debate about what is being earned in the market.

AUSTRALIAN dairy farmers are being paid too much for their milk, says the boss of the world's biggest milk exporter, Fonterra.

Most dairy processors in Australia, including Fonterra, are paying farmers an average of $5.60 a kilogram for milk solids. But the New Zealand dairy giant's chief executive Theo Spierings, said this was too high and did not reflect a collapse of global prices for key dairy commodities.

"What you cannot do is pay money that you have not earned," Mr Spierings said.

"We need to have an honest debate about what is being earned in the market. There will be different views but at a certain point in time people will land at a certain number...because [the farm-gate price] is not so difficult to calculate".

Dairy companies have matched Australia's biggest milk processor, Murray Goulburn, which set the opening price for the current season in June.

The farm gate price forms a key part of Murray Goulburn's non-voting unit trust - which floated last month - because it is tied to its dividend. If the farmgate price falls to 2012-13 levels, the yield would fall from 7.4 per cent to as low as 3.5 per cent, according to its prospectus.

Mr Spierings said he could calculate a more accurate farm-gate price based on Australia's dairy exports, which is 50-60 per cent of total production.

"We know those export prices so I can calculate based on the mix of exports that [farm-gate] price," Mr Spierings said. "And that is not on the level of $5.60."

But he stopped short of saying what he believed the price should be, saying next week's global dairy trade auction could alter his calculation.

In New Zealand - where Fonterra has a monopoly and up to 95 per cent of its total milk production is exported - the farm-gate price has plummeted from an average of $NZ8.65 ($7.81) to $NZ3.85 in the past two seasons.

Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn't based just on the farm-gate price and matched other processors.

"It's loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids," he said. "But we need to have the conversation now about what the endgame looks like. What is the value being created, what's the size of the cake? Then we need to have a good debate with farmers ... about how are we going to share, how are we going to cut the cake?"

Part of Fonterra's strategy to deliver value to farmers has been slashing 500 jobs, or about 3.3 per cent of its global workforce. Most of these jobs have been support roles in procurement, finance, human resources, information services and legal departments.

Mr Spierings said the redundancies weren't part of a company restructure but a "mindset shift", which could lead to more people being employed at Fonterra in the end.

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31/08/2015 11:46:33 AM

This is another example of the sad farm produce payment model that we have in Australia......Processors should be service providers only and not have the power of a clearing house for any primary produce. To have a proper market in beef and dairy ( in particular) this major irregularity must be addressed. An independent market operator and a market watchdog with legal teeth is long overdue. It is even more obscene when we see another nation's company executive dictating the terms of trade.....and who would be the advantaged in this advice? Not the 'Aussies Battlers', of can be sure!
Bushfire Blonde
31/08/2015 12:39:23 PM

I wonder how much Mr Spierlings gets paid and how it compares with the average Farmer's returns?
angry australian
31/08/2015 1:46:13 PM

Bushfire when you're looking for a scapegoat because your profits are falling, your milk price to your shareholders(NZ dairy farmers) is falling and you are copping a bashing in the NZ press, Fonterra -the options for change by Tony Baldwin news/article.cfm?c_id=3&objectid= 11503190 of course you are going to blame someone else for the poor performance. The man runs one of the most protected businesses in the world and wants to blame Australia for his woes. I think he missed his calling, should have taken up stand up comedy!
Boonah Bob
1/09/2015 5:11:59 AM

Obviously Mr Spierlings does not have a mirror otherwise he could see who to blame for Fonterra's diabolical situation. Did the 500 staff layed off actually have anything to do? Top heavy and all their exports in only a couple of baskets. Market failed and who suffers, the farmers again. Shame, shame, shame!
1/09/2015 8:01:35 AM

Interesting days! Perhaps M.G. is getting it right. More than Bonlac did. Naturally Fonterra is not happy; Fonterra Australia have to match M.G. prices to x Bonlac suppliers which might be causing them problems. M.G. paying down debt from 48% to 12% seems a good use of new capital until needed. Good luck M.G.
5/09/2015 5:21:21 AM

"Too high" because it doesn't reflect the collapse of global dairy prices? Seriously? Unless the value of milk at farm gate reflects production costs, sustainable farming is impossible. The problem is government’s abandonment of the public policy arena, turning food into a commodity. Canada's system of supply management, designed by and for farmers, respects both the farmer and the land/food commons. With concentrated global oligopsonies/oligopolies on both sides of the farm gate, Canada’s Supply Management gives Canadian farmers the dignity and respect they deserve from the marketplace.


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