Fonterra Launches Separate Milk Sourcing Subsidiary

11 Dec 2014 --- Fonterra has launched a separate milk sourcing subsidiary to grow market share in its New Zealand milk pool, and provide a new pathway to membership in the Co-operative.

Called mymilk, it will initially invite applications, from farms in the Canterbury, Otago and Southland regions that are not currently supplying Fonterra, for one year contracts, renewable for a maximum of five years, without the obligation to purchase Fonterra shares. At any time mymilk suppliers can apply to join the Co-operative, purchase shares and supply Fonterra directl

Fonterra Chairman John Wilson said: "It is good for the Co-operative and the country for Fonterra to be the first name on the list for farmers considering their supply options. We know there are farmers who support the co-operative model, but are at the stage of development where sharing up is currently beyond their financial reach.

"Providing a different pathway of supply through mymilk to farms not currently supplying Fonterra enables farmers to ultimately weigh in behind the Co-operative model.

"We are committed to delivering strong returns to our existing farmers and mymilkTM will contribute to these returns. Every additional kilogram of milksolids will generate improved cost synergies and we currently have large scale, efficient plants in the South Island with spare capacity."

Mr Wilson said it was important in an increasingly competitive milk sourcing environment that farmers could support Fonterra and then apply to become shareholders in the wholly owned New Zealand Co-operative in time.

"Taking a flexible approach supports our Co-operative’s strength and ambition to grow. We stand firmly by the co-operative principle that supply should be backed by shares which is why mymilkTM volumes will be limited to five per cent of Fonterra’s total volumes. Contracts will also be limited to five years in total and will only be available to farms that don’t currently supply Fonterra.

"It is also important that we protect the future of our industry and allow farmers to grow. We do not want a fragmented industry, as this would not be good for NZ dairy farmers and not good for the country."

Fonterra CEO Theo Spierings said Fonterra had the ability to reach millions of consumers and customers around the world through its broad product portfolio spanning ingredients, consumer and foodservice.

"We have a clear ambition to be a globally relevant Co-op, generating the highest sustainable returns at the farm gate, topped with profits from our consumer and foodservice businesses in strategic markets. Milk growth is fundamental to that. mymilk sends a signal to our current and potential competitors that we really value the milk from New Zealand farmers and we are out to secure it."

Contract prices paid by mymilk would be competitive, but Mr Spierings said they wouldn’t be more than the Farmgate Milk Price paid to Fonterra shareholders.

"mymilk suppliers will have the opportunity to experience first-hand a number of the benefits the Co-operative has to offer and we are confident this will encourage them to become shareholders during the five year period."

Mr Spierings said mymilk would deliver value to existing Fonterra shareholders in five ways:

•    Increase volumes of milk to support Fonterra’s global ambition
•    Help improve asset and supply chain utilisation
•    Achieve transport efficiencies by targeting milk near factories
•    Provide incremental milk for capacity investments
•    Attract potential new shareholders for the future

"Ultimately mymilk will return profit to the Co-operative’s existing farmer shareholders through capturing these benefits," Mr Spierings said.

Farmers who sign up to supply mymilk will be required to meet the same supply terms and conditions as Fonterra shareholders with regards to milk quality, safety and sustainability. mymilk suppliers will not be eligible for Farm Source benefits from Fonterra.