August 20, 2008

Dairy Trust is on the Hunt for Milk Suppliers

Some are keen while others have their doubts about the new kid in the paddock. -------------------- The Dairy Trust, a wholly-owned subsidiary of meat company Affco, says it has visited more than 100 farmers in the southern North Island, as it hunts for milk supply.

The company has a representative on the road covering the Tararua, Manawatu, Rangitikei, Wanganui and Taranaki regions.

The company says it does not have a firm contract for milk, but the representative is talking to dairy farmers about what their farm budget might look like if they supply the trust.

The company's chief executive Mark Fankhauser says: "We're really measuring the temperature of the region. And we're happy with the level of interest we are getting."

The company has yet to make a decision about whether it will take and process milk at Affco's Wanganui plant. When it announced it was setting up a handful of milk powder plants. it indicated one was likely to be Affco's Wanganui site. Mr Fankhauser says the Dairy Trust board is meeting soon to discuss progress in the region, and whether to go ahead with the plant.

"We've stopped short of contracting people to Dairy Trust, because we haven't yet made a firm commitment to this region."

Dairy Trust is a company and not a co- operative as is Fonterra, therefore farmers do not have to buy shares to provide milk to it. Mr Fankhauser says that, along with other commercial decisions, makes the company a valid choice for some dairy farmers.

A Manawatu farmer says the Dairy Trust is after milk suppliers, whose name the company can use to bring in others. But Mr Fankhauser says it is not going out of its way to attract such farmers, rather it is talking to many different milk producers.

"We're not specifically trying to single out movers and shakers, and of the 100 visits, some of them will happen to be influential people. But we're not targeting them - we're targeting milk." Some dairy farmers, upset by the meat company's foray into the dairy industry, say it is not interested in long-term promotion of the dairy industry, but rather taking advantage of international dairy commodity prices, which remain high.

A rural banker says he believes Dairy Trust is offering those who supply the company at least 20 cents/kg of milksolids less than Fonterra's full share price as a base price.

He says there also good premiums for winter and shoulder milk, as well as premium payments for milk with a low somatic cell count.

The banker says the Dairy Trust is also prepared to pay more to large-scale dairy farmers. The more cows, the more money, he said.

Mr Fankhauser says it is no secret how Dairy Trust pays farmers.

"A base price, with the additional of a bunch of premiums, based on quality, volume and shoulder milk. We are trying to motivate farmers to be bigger, and have better quality of milk through those premiums."

A Kairanga dairy farmer, who doesn't want to be named, says the family is seriously considering moving to the trust.

"To Fonterra, you are just a number.

"The Dairy Trust has a lot going for it. It doesn't owe money for a start. And its attitude of improving milk quality fits in with what we think is important," he says.

He believes trust will go ahead with the Wanganui milk powder plant.

"We're really excited. A big attraction is that a supplier is not penalised for producing more or less milk than they thought. Unlike Fonterra, there is no peak capacity charge on spring milk."

He says they have found the company to be more user-friendly and far more laid back than Fonterra.

Other farmers say they are concerned the trust will erode the co- operative nature of the dairy industry and don't want it to go the same way as the meat industry, with internal rivalries resulting in poorer market returns.

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