Organic co-op eyes $7 payout

MARK TAYLOR/Waikato Times

MAKING THE SWITCH: Otorohanga dairy farmers David and Ailsa Miller are going organic and have been promised more than Fonterra could pay them for organic milk.

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The New Zealand Organic Dairy Farmers Co-Operative is telling four Waikato farmers who joined up this season they could earn a predicted $7 per kilogram of milksolids.

The fledgling Taranaki-based co-op's forecast payout is $2.45 more than Fonterra's forecast for the season and $1.40 more than what Fonterra is offering for organic milk.

Russell Simmons, who founded the co-operative and is supply manager, said the co-operative had arrived at the figure using a 58c exchange rate, so if the rate was at 63c, as it was yesterday, the payout would be closer to $6.50.

"In the next six months it might come down and it might go up," Mr Simmons said.

Milk collection would begin from 25 farms across the North Island next month, once the factory, in Okati, Taranaki, was completed, he said. Milk tankers would call at suppliers' farms two or three times a week.

"We are building it at the moment ready for this season," he said. "We formed simply because we thought there's a huge market opportunity and organic dairy farmers wanted to control their own destiny."

Farmers from the Hauraki Plains, Huntly, Otorohanga and Te Awamutu two already supplying organic milk to other processors and two who have made the conversion are among those who will supply an estimated 22 million litres of organic milk to the co-operative for export this season.

Mr Simmons aimed to recruit a further 20 suppliers to the co-operative next season, doubling collection to 44 million litres. "We are at 70 per cent capacity for next year already," he said.

Converting to organic and obtaining the correct certification took three years and cost about $1500 per farm per year.

David and Ailsa Miller, who have supplied Fonterra for eight years, spent weeks wrestling with the decision before making the switch in May.

Mr Miller said they had made the decision because they believed in what the new co-operative was trying to achieve.

"This is an exciting opportunity for small and medium sized farms," Mr Miller said. "The CEOs of the smaller companies under-promise and over-deliver."

His herd of between 360 and 400 cows produces between 90,000 and 104,000kg of milk solids on 131ha. The co-operative was formed to take advantage of the worldwide demand for organic dairy products, he said. Fonterra said in May that the category was valued at US$5.6 billion (NZ$9.2b) and represented 3 per cent of all dairy products consumed internationally.

Paul McGilvary, chief executive of the Tatua Co-operative Dairy Company at Tatuanui, said it was hard to see dairy payouts exceed the mid $4.50s in the coming year.

"Since Fonterra set their expected payout for 2009/10 at $4.55 international prices for dairy commodities have continued to decline and the New Zealand dollar-United States dollar exchange rate has bounced back over 60c from well under 60c," Mr McGilvary said.

Milk production in Europe and the United States, off a fairly high base, was declining in the face of lower prices, he said.

"Intervention buying of dairy commodities by the USA and Europe is removing some excess product from the market but export subsidies continue to hold prices at low levels."

Mark Fankhauser, Open Country Dairy chief executive, would not share the company's forecast.

Matters as fundamental as payout were between the company and suppliers, Mr Fankhauser said. "The current foreign exchange and market pricing are very low for the currently publicised forecast for others."

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