How does urban perception relate to the Fonterra Co-Operative difference payment?

In a previous life, working at a leading bank I was taught about Unconscious Bias, what it is, why it happens and how we can remove it, by assessing all the facts and keeping an open mind.

Time to read: 6 mins

This article looks at dairy farming, urban perception of dairy farming in NZ (looking at you major cities and export market), and how a major audit of Fonterra’s practices led to the Fonterra Co-Operative Difference Payment; and what that means for both farming and urban communities.

As the son of a dairy farmer and working with a range of businesses daily, I’ve seen and heard bias on both sides. From the farmers you hear, “those townies have no idea what happens on farms”. And as a business advisor and town dweller, I have seen all the negative rhetoric about farming practices too… like videos shared on social media of a cow in a hip lifter and assuming animal cruelty, and not understanding a farmer had been up all night, in the rain saving her life.

For generations farmers have been perceived to be dirty, uneducated, environmentally unaware and ruining the land. This stereotype is something that needs to change before more and more farmers are victimised for doing their job.

So, let us try and remove our bias, and look at the facts about dairy farming practice in NZ, and how the new Fonterra Co-Operative Difference Payment is structured, and what that means for us all.

 

Whether dairy farmers like it or not they are price-takers and are dictated to by the consumer; the consumer being those town folks in New Zealand and abroad. And urban shoppers these days are seeking more and more information about where our food comes from; we care if it has been produced sustainably, what its origin story is, and we check the manufacturers environmental or production credentials. We want to know what we are eating. I for one will happily spend an extra 30minutes at the supermarket researching food labels.

With that in mind, it is extremely welcoming news that Fonterra has introduced the Fonterra Co-Operative Difference payment which rewards our quality farmers but also helps improve urban perception of dairy farming. So, what is it exactly? This payment initiative is to reward farmers who are producing sustainable, high quality milk; not defined solely on its content or volume, rather HOW it is made.

How did it come about? Fonterra was audited by one of their largest customers, Nestle, as part of a routine investigation into their suppliers. As part of the audit randomly selected farmers were audited on everything from nitrogen inputs, to what they do with their silage wraps. Nestle wanted to know how things were done and why.

Dairy cows grazing in a paddock with Mt Taranaki in the background

Photo by Dave Young @ dcysurfer on Flickr

Another key component of the audit investigated ‘People and Community’. Being sustainable is not all just about protecting the environment but it is also about creating safe and enjoyable workplaces for the people working there. With more awareness around the mental wellbeing of farmers, it is important to ensure they receive the same standard of care as any other employee in New Zealand.

Farming is both hard work and extremely rewarding. From the early, cold, wet mornings to the satisfaction of hearing happy cows as you let them into a new paddock of fresh grass. Fonterra are encouraging our farmers to not only produce top quality milk but create safe and healthy working environments across the board. Being lucky enough to be brought up in a tight knit rural community I congratulate Fonterra for including mental health and employee wellbeing as a requirement of the Co-Operative Difference Payment.

And this maybe a surprise to some urban dwellers, but the most common response that we’ve heard from farmers about these two aspects of the Co-Operative Difference Payment is ‘great, we do that anyway’. Which is positive news for all of us and may change the way you think about farming practice. The vast majority of NZ farmers are already meeting or exceeding these rigorous work and wellbeing standards.

It’s another great step forward for the industry. Back in the 70’s and 80’s dairy farmers didn’t have the same information as farmers do today around things such as fencing off waterways or nitrogen run-off. Therefore, no regulations were introduced. After improved scientific research and information gathering the Clean Stream Accord was signed in 2003 which saw a substantial change in the industry. This new initiative from Fonterra is simply adding to good work the Clean Stream Accord has done for environmental sustainability on dairy farms. I believe that this audit was a great catalyst for Fonterra to monetise the incentive for the environmental work farmers already do.

 

So how do farmers get paid with this new payment model?

This is an example supplied by Fonterra to calculate how the $0.10c is paid.

If we had a $7.00 milk price, 1,500M kgMS, a simple 10 cent Co-operative Difference Payment and exactly 50% of our production achieves this 10-cent payment it would look like this:

  • Final retro stops at $6.90 leaving $150M to be distributed.
  • COD Payments are paid (750M kgMS x $0.10= $75M)
  • Remaining balance of $75M is returned to milk price ($75M/ 1500M kgMS = $0.05)
  • Base price is the final retro payment plus $0.05 which equals $6.95. This is what farmers who do not achieve will receive (excluding the impact of other Milk Payment Parameters).
  • For farmers who achieve the $0.10 payment in our simplified example, they will receive base price plus the $0.10. ($7.05).

The Fonterra Co-Operative Difference Payment is a great initiative to adapt to the demands of the consumer who buys the product. Consumers can shop with confidence knowing that their dairy products have been farmed in a sustainable way, and the people doing the work are safe and happy in their work. Whether this difference payment will earn a farmer an extra $5,000 or $20,000 for their efforts, we are excited to work alongside our farming clients to show them how the good work they’re already doing will now improve their business financially, help their people practices, and preserve their land and the dairy industry for future generations.

 

When I hear people spreading misinformation about dairy farming practices, I only have to think back to the day I was down the back of the farm with my dad, working by a stream we had fenced off and planted 5 years earlier. A mob of happy cows surrounded us intrigued to what we were doing. Dad said, “this is what should be printed in the media, showing how the 99% of farmers operate”. He’s a wise man.

As New Zealanders continue to lead the world in sustainable dairy farming, I’ll ask you this question: how willing are you to relinquish any unconscious bias you may have on dairying farming in NZ, now you know how farmers are measured and renumerated for their work?

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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