New Zealand dairy offers additional premiums to organic suppliers

August 18, 2003, Fonterra: Fonterra, a New Zealand-based dairy company, is preparing to increase premiums to organic milk suppliers who choose to meet United States Department of Agriculture (USDA) standards.

Fonterra aims to have all its organic milk meeting the USDA standard within the next few years, a move that will enable the co-operative to compete effectively in the US where demand for organic dairy products is expected to increase tenfold over the next five years. Rick Carmont, Organics Business Manager for Fonterra, says organic suppliers will ultimately benefit from the move by getting paid more for their milk.

"Currently, Fonterra's organic suppliers receive an additional 10 percent, and we will increase this premium for suppliers who meet the USDA standards," he said. "Those organic suppliers who choose to meet the standards will need to make a few modifications to their operations, and we want to compensate them for helping Fonterra create a competitive advantage. The increased premium has to cover costs, as well as provide a good incentive."

Mr Carmont says meeting the USDA standards will provide a competitive advantage. "US consumers are looking for the USDA seal on the organic products they buy, as it assures them they are buying the highest quality organic products," he said. "Therefore, Fonterra has to be able to provide our customers - major food manufacturers - with organic ingredients that meet the USDA standard and carry this seal. This is essential if we are to compete effectively."

Fonterra currently has 22 organics suppliers and processes organic milk at three Waikato factories. Approximately 17 million liters of milk will be delivered this season. The company is actively recruiting new organic suppliers. A final decision on the exact premium is subject to Fonterra completing its analysis. It will take several years for the company to meet the USDA standards as cows that have been subject to antibiotic treatment must be ruled out.

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