19 Feb MyMilk is coming to the North Island
MyMilk is a wholly owned company of Fonterra Co-operative Group Limited (“Fonterra”). It was set up to secure the supply of milk and does not require the supplier to purchase Fonterra shares.
MyMilk is a great opportunity for suppliers to supply Fonterra without incurring the cost of Fonterra shares provided that the potential supplier meets the relevant criteria. MyMilk works with the supplier to enter into a supply contract for a maximum term of five years. MyMilk is available for:
- Farm conversions;
- A Fonterra supplier purchasing a dairy farm from an existing Fonterra supplier. This is a new option provided you meet relevant criteria. One criterion is that the option is limited to one farm for each current entity/entity group supplying Fonterra;
- Farms supplying other processors; and
- Genuine first-time dairy farm owners.
While this is a great opportunity, any potential supplier needs to be aware of the contractual terms MyMilk is offering. The terms are similar to those of Fonterra Supply Contracts. The key terms to be aware of are:
- A supplier must give notice in writing by 28 February to not continue to supply milk to MyMilk after 31 May in the following season. A supplier cannot supply milk to MyMilk for more than five seasons. If notice is not provided, the supplier must supply MyMilk or Fonterra in the following season.
- Liquidated damages are payable for failure to supply to MyMilk. The liquidated damages’ calculation is $1.00 per kilogram of milk solids supplied in the previous season, or, if the forecasted supply is higher for the next season, then at that higher forecast. This risk should be manageable provided notice is given by 28 February.
- A contract fee is payable for each kilogram of milk solid supplied. This fee is currently set at 5 cents per kilogram of milk solid, reviewed annually by Fonterra’s Board. Any changes would not become effective until the commencement of the following season. The contract fee is held on trust for the supplier and will be used by the supplier to purchase Fonterra shares in the future. If the supplier does not supply Fonterra after the MyMilk contract ends, the contract fee held on trust will be forfeited.
- All milk must be supplied to MyMilk.
- MyMilk does not charge a transport fee and would only do so if Fonterra introduced a transport charge in the future.
- The MyMilk supply contract is assignable, with MyMilk having 30 days to provide consent. A contract assignment is still required to meet MyMilk’s eligibility and at MyMilk’s total discretion.
The sale and purchase of a dairy farm may be easier to address for a vendor, if notice is given in writing by 28 February for a settlement the following 31 May. A purchaser may want an assignment of the contract, subject to obtaining MyMilk’s consent. This would need to be a condition of the agreement.
At any time during the maximum of 5 seasons with MyMilk, the MyMilk supplier can join Fonterra and purchase Fonterra shares to meet the share standard. All Fonterra share up over time contracts are available to MyMilk suppliers. The MyMilk supplier can also supply another processor at the end of the 5 seasons. This offers flexibility without incurring any legal obligation to purchase Fonterra shares.