Fonterra products earning a premium but will it last?

Fonterra dairy ingredients are selling for between $100 and $400 per tonne more than the same milk powder products are fetching for its competitors, a feat which could significantly boost the milk price, says Fonterra chairman John Wilson.

Speaking to the at Fieldays, Wilson said it was possible Fonterra’s Trusted Goodness food quality seal marketing initiative was responsible for the price spike, which was notice- able in Global Dairy Trade auctions over the past eight to 12 months, mainly in wholemilk and skim milk powder sales.

“That’s extraordinary. But the question we all have, and we have to be careful this is not made into something bigger than it is, is this sustainable going forward?” said Wilson. “Is it created only because of Trusted Goodness or is it because other things are happening in the market?

“For example 320,000 tonnes of skim milk powder is sitting in the market place at the moment in Europe, so is that having a mispricing impact through the market?”

Wilson said Fonterra believed the higher prices it was attracting were sustainable and, if so, could have a positive impact of 20c-40c/kg milksolids on the milk price to farmers.

“If you look at those sorts of numbers [$100-$400/tonne] and all other things being equal — and there’s a whole lot that moves around in this — that would be an impact of 20c to 40c, but we need to see what happens over time,” said Wilson.

“We need to wait until the end of the year to see but it’s highly beneficial for our farmers if indeed there is a sustainable premium there for Fonterra ingredients.”

But anecdotally the Trusted Goodness food quality seal on all Fonterra’s branded products was being valued in the market, Wilson said.

“I say it’s wrong now to talk about Fonterra products as commodities.

“Fonterra products are largely ingredients and when you think about the plants built over the last seven or eight years, these are producing high-spec ingredients for our customers.”

The Trusted Goodness programme was launched last year.

The words “Trusted Goodness” and a special message targeted to different markets appear on the back of Fonterra products. In the US, the seal states products are “non-GMO”. Those sold in China say “grass fed”.