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Dairy Farmers and the environment: perception v reality

Dairy farmers get a rough ride in the media and from townies, and the industry is well aware of this negative perception.  Recent changes in Fonterra pay-outs have brought some of those concerns front and centre, and make this a good time for those with fixed views or unconscious bias to explore a little deeper.

Time to read: 7 mins

This article looks at dairy farming, the urban perception of dairy farming in NZ (here's 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. 

As the son of a dairy farmer, who now works with a range of rural and urban businesses on a daily basis, 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 witnessed all the negative rhetoric about farming practices as well¦ a recent example comes to mind of a video shared on social media of a cow in a hip lifter, assuming animal cruelty, when in reality it showed a farmer who had been up all night in the rain, saving the cow's life.

For generations farmers have been perceived by urban dwellers to be uneducated, environmentally unaware and ruining the land for their own gain.

It's a stereotype that needs to change, as our world becomes more focused on climate change, the impacts of farming and the opportunities around regenerative agriculture. It's a stereotype which will also benefit from changing, as the line between urban and rural becomes more fluid, and our focus continues to be on how to minimise our footprint and operate sustainably. 

This article aims to assist in removing some of that biased view and righting some misconceptions, by explaining 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 mostly urban dwellers in New Zealand and abroad. And shoppers 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 manufacturer's 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 to have confidence that my consumption is in line with sustainable living. 


Unpacking the Difference Payment: Sustainable Practices

In this context, we have the welcoming news that Fonterra has introduced the Fonterra Co-Operative Difference payment, which aims to reward our quality farmers and also improve the urban perception of dairy farming. So, what is it exactly? This payment initiative is intended to reward farmers who are producing sustainable, high quality milk; not defined solely by content or volume, rather by HOW it is made.

How did it come about? Fonterra was audited by one of their largest customers, Nestlé, 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. Nestlé 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


Unpacking the Difference Payment: People & Community

Another key component of the audit investigated ;People and Community;. Being sustainable is not all just about protecting the environment but also about creating safe and enjoyable workplaces for the people working there.

With increased general awareness around the mental wellbeing of farmers, it has become increasingly important that their mental health is protected just as equally as that of office and city workers. 

Farming is both hard and extremely rewarding. Farmers experience a full range of emotions every day, from the early, cold, wet start to the satisfaction of hearing happy cows moo as you let them into a new paddock of fresh grass. Managing these emotional ups and downs, when often working alone or with few others, is challenging on the farm.

One of the results of the Nestlé audit was to encourage Fonterra to look to develop systems which support farmers to not only produce top quality milk but create safe and healthy working environments.

I was lucky enough to be brought up in a tight knit rural community, and I know how hard the mental health game is for farmers. I congratulate Fonterra for introducing mental health and employee wellbeing as a requirement of the Fonterra Co-Operative Difference Payment.


And the response from farmers? 

The most common response that we've heard from farmers about these two key elements of the Fonterra Co-Operative Difference Payment is 'great, we do that anyway'. Hugely positive news for all of us, and another challenge to that unconscious bias many hold. The vast majority of New Zealand farmers are already meeting or exceeding these rigorous work and wellbeing standards.

It's another great step forward for the industry, similar to the changes which came about from the Clean Stream Accord. Back in the 70's and 80's dairy farmers didn't have the same information as farmers do today around the impact their farms had on waterways. After improved scientific research and information gathering, the Clean Stream Accord was signed in 2003 which saw a substantial change in the industry. The Accord resulted in the wholesale fencing of waterways and reduction in nitrogen run-offs. While it's taken time, it's now unusual to see a waterway with cattle close by, and one which has not been fenced off and planted out.

The Cooperate Difference Payout simply adds to good work the Clean Stream Accord has done for environmental sustainability on dairy farms. And the Nestlé audit proved to be a great catalyst for Fonterra to monetise the incentive to operate sustainably, for the land, animals & people. 


How does the payout work?  

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

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

For this illustration, we assume a $7.00 milk price, 1,500M kg milk solids (MS), a simple 10 cent Co-operative Difference Payment and 50% of our production achieving the 10-cent payment. 

For this example, we assume:

  • $7.00 milk price
  • 1,500m kgMS (total NZ milk supply, Fonterra)
  • A $0.10 cent Co-operative Difference Payment
  • 50% of our production have achieved requirements for the $0.10 payment
  • If the final retro* payment is $6.90, this will assume $150m is left to be distributed to all Fonterra suppliers.

Step 1:

  • Co-Operative Difference (COD) payments are paid (750 million kgMS x $0.10= $75m) “ 750m kgMS is simply 50% of 1500m kgMS.
    • $75m figure is to be allocated to farmers achieving COD.
    • $75m is half of the $150m which is remaining to be allocated in the final retro payment.

Step 2:

  • Remaining balance of $75 million ($150m - $75m) is returned to milk price ($75m/1500m kgMS = $0.05) therefore the final retro payment is $6.95 for every Fonterra supplier.

Step 3:

  • For the farmers achieving COD they will receive a share of the $75m as a $0.10 payment on the amount of milk solids they produce.
  • For farmers who achieve the $0.10 payment in this example, they will receive base price plus the $0.10 which equates to $7.05.

*"Retro" refers to the retrospective payment schedule which runs Aug-Oct each year. The retrospective payment schedule pays out the remaining 15% of milk earnings to suppliers due after the September Annual Results announcement.  


In Summary: an exciting future for dairy 

The Fonterra Co-Operative Difference Payment is a great initiative to adapt to consumer demands. Shoppers have increased confidence knowing they are buying dairy products which have come from sustainable farm practices, and the people doing the work have policies in place to protect their health and wellbeing.

As business advisers, we're 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. It might mean a simple gain of $5,000 or $20,000 to the bottom line, but it will also mean an overall change to all New Zealand farms over time. 


Final thoughts: it's important to challenge your bias 

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 shown 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 challenge any unconscious bias you may have about dairying farming in New Zealand, now you know how farmers are measured and remunerated 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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