Price volatility is a real fear for new entrants and different pricing options is something that appeals to farmer suppliers, Francis Reid, of New Zealand dairy giant Fonterra told the National Dairy Conference.
The Policy and Advocacy Manager at Fonterra Europe said that in New Zealand suppliers are looking for different pricing options as they have different needs and attitudes to risk, based on their own individual set up. He said that new entrants will fear price volatility more than farmers who have been farming for years.
Volatility is a challenge, he said, not a negative thing and New Zealand farmers would much rather be in the post-2007 situation that has price volatility but also has access to higher average prices than before.
“For farmers the key has to be what happens on the farm, not outside of it. The farming system needs to be profitable.” A good model, he said, is one that realises that volatility has to be managed rather than thinking the good times are here forever.
Processors, he said, can help farmers deal with price volatility in two ways. The first key thing, he said, is to add as much value as possible to a diverse product portfolio with good routes to market.
Secondly, he said, is to ensure other milk pricing tools and models are available to farmers. Fonterra, he said, does this by offering a guaranteed milk price at the beginning of the season and while only a very small percentage of farmers avail of it, it’s there to help farmers.
Regardless of how much price volatility occurs though, he warned that the only way to deal with it is to manage it. He said that Europe has had restricted dairy supplies for 30 years and it cannot continue, nor can it go back to being restricted to prevent volatility. Some people in Europe, he predicted, will want to see a return to the quota system and he warned that it should not happen.