The payment is not in addition to the average farm gate milk price forecast, but will be part of the milk payment parameters used by Fonterra when paying individual farmers.
The amount and targets for the payment will be set annually by the Fonterra Board.
The new system, starting from June 1, would see seven of the 10c for achievements in areas including the environment, co-op and prosperity, animals, and people and community focus areas.
Fonterra’s group director for Farm Source Richard Allen says the co-op and prosperity achievement would require farmers to submit their full farm dairy records to the co-operative by June 30, 2022, one month earlier than the previously required deadline.
Farmers would have to develop an animal wellbeing plan with their veterinarians to ensure animal welfare standards are met.
Fonterra has also partnered with DairyNZ to use its Workplace 360 tool to make sure farmers are compliant around health and safety, labour practices and staff wages.
Allen says the tool has three parts and farmers would have to achieve 100% on its first part.
The environmental requirement will mean farmers either having a farm environment plan (FEP) or be on a waiting list to be getting such a plan.
These plans can be either a Fonterra-created plan or a certified plan drawn up by a consultant.
He says about 45% of its farms had such a plan, as it hopes to achieve having all farmers with FEPs by 2025.
In addition, farmers need to have achieved three out of four on-farm practices.
These include ensuring more than 80% of the feed consumed by their herd has to be grown on New Zealand farms.
Farmers can also no longer have no point source dairy discharges straight into waterways.
This rule did not include leaching from land into waterways.
The third practice was showing evidence of participation in rural plastic recycling schemes such as AgRecovery, and the fourth was a new limit for purchase nitrogen surplus that was at or lower than 138kg/ha.
That is calculated as the N left over from the feed and fertiliser brought onto a farm minus the milk, beef or animals exported off the farm.
“That 138kg N is effectively the 75th percentile, so 75% of Fonterra farmers are achieving that, so it’s really targeting the bottom 25%,” Allen said.
Climate emissions are not directly included in the practice, but Allen says it is indirectly in the N target.
Once those are achieved, 3c would be paid for milk that meets the “excellence” standard under the co-operative’s milk quality framework.
That standard is measured and graded when the tanker driver collects and tests the milk. The milk is graded as either a downgrade, quality or excellence.
The excellence grade is awarded when the milk meets a higher level of quality, above Fonterra’s milk parameters.
Once the farmer achieves an excellence grade of 30 days across the season, then every day they achieve that grade would see the farmer qualify for the 3c payment.
Allen estimated that the number of suppliers who qualified for the 7c payment starting next season would be “in the thousands not in the hundreds”.
But he wanted as many farmers to participate in the payment as possible.
“This is not about rewarding the top 5%. This is about rewarding as many farmers as possible and we want it to be as accessible as possible,” he said.
“If everyone meets this, it’s a great outcome for the co-op because we can then go out and say that farmers meet these standards.”
Council backs new payment framework
Fonterra Cooperative Council chair James Barron says the new Co-operative Difference framework gives it the means to answer any questions in the marketplace around how it produces its milk.
“It’s a clear link between the market and us,” Barron said.
There had been a lot of feedback from farmers, which had fed into the framework’s development.
He says it was here where any negative feedback was then used constructively to improve the framework prior to its launch.
On balance, the feedback the council, formally known as the Fonterra Shareholders’ Council, had received so far since its launch had been positive.
“Farmers appreciate there is clear direction and guidance on what they need to achieve and support for them to be able to achieve that,” he said.
“From a personal perspective, the way I see this Co-operative Difference framework is that it’s essentially helping us gather all of the information that we need to prove how awesome we are at what we do.”
The biggest change for farmers was it introduced a nominal figure into Fonterra’s milk payment parameters for the first time. Up until now, he says, those parameters were based on the economic values of the milk’s composition.
“This is more of a ‘what do we think is the right number here?’, and it’s been used to lead and encourage behaviour,” he said.
He says there were risks of unintended consequences of using such parameters, and those will be monitored closely and reviewed yearly.
“But far and away, the benefits of it outweigh those and that is the benefit of being to answer all of the questions customers are asking,” he said.
