Into the breach

Fonterra is not the only option the suppliers of the failed Organic Dairy Company have. Richard Woodd reports.

Fairfax

Open Country Cheese Company: The factory at Waharoa, near Matamata.

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While Fonterra is making headlines for "rescuing" Organic Dairy suppliers, the credit should also be going to Open Country Dairy, its major North Island rival.

Fonterra will only collect milk from farmers who commit to becoming shareholders, which requires substantial capital either up front or on time payment.

Open Country is prepared to collect ex-Organic Dairy supplier milk for the rest of this season with no strings attached.

Those suppliers, left high and dry by the failure of Organic Dairy Ltd's new cheese factory at Okato, are owed substantial payout arrears and many now lack the capital to buy into Fonterra.

Organic Dairy was placed under the control of a BNZ-appointed receiver- manager last Friday night, at the request of the directors.

No arrangements were made to collect the milk from Organic Dairy's remaining 23 suppliers on Saturday morning.

Open Country chief executive Mark Fankhauser says Organic Dairy suppliers turned up in tears on farming friends' doorsteps, distraught that their milk was uncollected.

"I was called by some of our suppliers and once the situation was explained, I realised we had to do something.

"We could not allow milk to go off in the vats," Mr Fankhauser said.

"We spoke to Organic Dairy's transport contractor Clive Langford, and asked him to collect whatever was in the supplier vats, that we would accept the milk at Waharoa and sort out payment later.

"We are prepared to collect and buy their milk for the balance of this season, but we cannot go beyond that.

"Our total capacity is committed for next season and ultimately those suppliers will have to find the money and go to Fonterra.

"A few Organic Dairy suppliers approached us some weeks ago about enduring supply contracts, and we were in discussions with them, but we do not have the space for all this milk.

"We are paying $5 per KG for non- organic milk for the balance of the season and that is based on what we are getting for our powder on the export market, which has come down since its peak of last October- November.

"Normally we pay 20 to 25 cents below Fonterra. To pay any more than $5 would mean our existing supplier base would be subsidising the temporary arrangement and I doubt they would be happy about that."

Fonterra is treating ex-Organic Dairy suppliers no differently than anyone else wanting to sell bulk milk. Suppliers have to buy shares for next season at $1 for every kilogram of milk solids supplied, either paid upfront or paid in thirds under a growth contract.

Fonterra is prepared to pay $5.60 per kilo for the balance of this season, with no organic premium, "but they have to commit to buying shares in Fonterra before we will pick up their milk", says Fonterra's general manager milk supply, Tim Deane.

"You either fully share-up before next season or, as a new shareholder, there is the opportunity for a growth contract - the same as any new shareholder.

"For an ex-Organic Dairy farmer with no money to buy shares, we will not take your milk.

"We do not buy anyone's milk unless they are shareholders."

Mr Deane said about half Organic Dairy's 23 suppliers had committed to joining Fonterra; the rest had signalled an intent to commit and were talking to their financiers.

He expects about three-quarters of the suppliers to come to Fonterra "while a few have indicated they will leave dairying".

For next season, organic share- backed milk would attract Fonterra's prevailing organic premium providing it meets all Fonterra's organic supply criteria.

- © Fairfax NZ News