Thursday, March 28, 2024

Risk tool coming to replace GMP

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Reaction to news Fonterra is to wind up its guaranteed milk price scheme at the end of this season has been mixed. Reporoa farmer Bryan Gibson welcomed its ending saying a co-operative should treat all shareholder-suppliers the same, which wasn’t the case with the guaranteed milk price (GMP).
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My Farm executive director Grant Rowan said individual farm boards in the group decided whether to be part of the GMP and he hoped it would be replaced by another system to manage fluctuating milk prices.

Fonterra told shareholders the board decided to end the scheme because it did not have widespread support from farmers.

But stock exchange, securities and capital markets operator NZX was continuing work developing a milk price risk management tool.

NZX head of derivatives Kathryn Jaggard said Fonterra’s decision added impetus to that work because there was interest from farmers.

“NZX knows dairy farmers are certainly keen to see something in place before next season,” she said.

“There certainly is demand and the ending of the GMP means that interest will be even greater.”

However, it had to be right and NZX was still talking to stakeholders about what exactly was needed, how it would operate and the support and information users would need.

NZX did not have a definitive launch date.

Bay of Plenty farmer Bryan Gibson said GMP was not universally liked by dairy farmers.

“While any farmer can take advantage, it’s not a co-operative thing to do. It creates division.”

Gibson said he could have locked 75% of this year’s production at the GMP price of $5.25 and made a profit.

He decided against it because he felt it was inconsistent with co-operative principles.

“NZX knows dairy farmers are certainly keen to see something in place before next season.”

Karthryn Jaggard

NZX

“I couldn’t turn up at a discussion group and have someone say to me ‘you are getting more for your milk than I am’.”

Rowan said hedging against fluctuating milk prices was the same as hedging against interest rates.

Co-operatives needed to be competitive and innovative and he hoped a tool to manage milk price risk would be available.

Fonterra launched GMP as a pilot in the 2013-14 season and for the start of this season 433 farms applied to fix the price on 45.2 million kilograms of milksolids, twice the number of farms from which applications were received a year earlier.

Fonterra scaled back applications by 16.5% to achieve the 40m kg MS it wanted under the GMP.

The Fonterra newsletter said applications for the final round of the GMP scheme would open in December and expire at the end of the 2015-16 season.

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