Media release

New Fonterra grading system warrants contractual clause change for farmers

December 6, 2017

Federated Farmers is reminding dairy farmers and sharemilkers supplying Fonterra to update existing business agreements as they face joint liability to meet upcoming changes to co-operative's grading system.
These changes are particularly important to farmers using palm kernel (PKE) as feed.

Dairy co-operative Fonterra is introducing a grading system next September to measure milk fat composition, which changes with excessive use of PKE impacting on manufacturing capability and seasonal customer preferences.

Fonterra farmers who don’t  deliver milk within the suitable fat composition range will be penalised.

Sharemilker Farm Owners’ Section Chair Tony Wilding says the Federation’s sharemilkers and sharemilker farm owners’ sections had been anticipating the changes since they were announced in June this year.

"The sharemilkers farm owners section and sharemilkers’ section have been aware of this emerging liability. We consulted with farmers, farm advisors and various farming groups and we believe we’ve come to a fair resolution for both parties."

Farmers tended to use PKE to assist in the shortfall of pasture.

Farm owners and sharemilkers in current agreements should seek to add a clause to address this new risk. New agreements will also have an additional clause under milk grading and feed to direct the parties.

"Our conclusion is this is the fairest way of allocating these new demerits as per the revenue share of milk production. We intend to update Federation contracts to acknowledge these changes," says Tony.