Fonterra has announced it will suspend for six months the 5 cents differential between its share-backed and non-share backed farmgate milk price.

The decision means farmers will not be required to immediately buy more shares to cover increased milk production at the end of this season.

Instead, they will share up based on the new rolling three season average share standard which comes into effect from June 1 next year.

Chairman Sir Henry van der Heyden said for most farmers, the new share standard should result in a lower required minimum shareholding from that time.

"This is a commonsense solution that will simplify farmers' business decisions between now and June 2013. It will ease the transition into the introduction of the three season rolling average from that time.

"Earlier in the year, the Fonterra board decided on a 5c difference in the farmgate milk price for share-backed and non share-backed production.

"We have since seen higher levels of milk production this season than originally forecast - and some of our farmer shareholders were considering adding to their shareholding now to gain the benefit of the full milk price," van der Heyden said.

"The board's made a practical decision to suspend the 5c milk price differential for the next six months, because it made no sense to encourage farmers to acquire additional shares in this period.

"Instead, this decision sends a strong signal to our farmer shareholders that they should not feel any pressure to purchase shares to back all their production this season.

''Farmers could focus on other priorities, while also getting used to managing their shareholding through the Fonterra Shareholders' Market and fund," he said.

The decision does not apply to the contract milk price (for milk supplied by farmers who are not Fonterra shareholders), or former NZDL suppliers.

- © Fairfax NZ News