GMP option gives farmers certainty
Fonterra has extended its guaranteed milk price (GMP) option to its shareholders into 2014-15 after a successful pilot this season.
It will be offered on 60 million a kilogram milk solids (kgMS) in two allocations. Applications to supply 40m kgMS on a 12 month GMP will open in June. In December, applications will open to supply 20m kgMS with a six month GMP offered on production from December 1.
The co-operative plans to provide further details next month, including the process to set the GMP price and allocate volumes to farmers applying.
As many as 328 farmers signed up for the GMP this season and supplied 15m kgMS a $7 per kgMS. This price was based on the opening forecast for the season. The pilot attracted such a high level of support that applications were received to supply 37m kgMS. Participants were scaled back to 40 per cent of their original application.
Farmer feedback from the pilot showed the GMP was seen as a useful tool for farmers to manage price volatility and secure income certainty, Fonterra chief financial officer Lukas Paravicini said. Having an opportunity to apply for the GMP in December meant farmers could follow the farmgate milk price trend for the first half of the financial year before deciding on whether to lock down the price for some of their production in the second half, he said.
"GMP has given them certainty around a proportion of their income for this season. Having certainty means they have been able to confidently make decisions around servicing debt or making capital investments on farm especially when prices are volatile and this certainty comes regardless of the final milk price."
Paravicini said this was a useful risk management tool for farmers who wanted to take advantage of it. Some may want to use it every year, others when they want financial certainty to undertake major projects or negotiate debt.