A few weeks ago, I had the pleasure of chatting to Co-op farmers around the country about the updates to the Co-operative Difference, and the introduction of new Customer Incentives.
In case you missed it, these new incentives are available for farmers in two ways – one is through On-Farm Solutions, which could be tools and services like herd tests, and the other is as an Emissions Incentive payment between 10-25 cents for those farmers with one of the lowest net footprints in the Co-op.
Both incentives are accessed by achieving any level of the Co-operative Difference and meeting specific criteria around the Emissions Incentive payment.
As I’ve been talking to farmers, I’ve been impressed by the questions we’ve been asked. And I wanted to share some of the things we’ve been talking about on the road.
Firstly, who’s driving the change?
We have the hard work of our farmers to thank for this being a possibility in the first place. These incentives were negotiated by the Co-op and are funded through separate agreements with Mars and Nestlé – two of our strategic customers. Both customers are on a journey, like us, to reducing carbon emissions across their businesses.
Strategic customers, like these two, have had a positive impact on the Co-op’s milk price and earnings for years. Replacing them would be difficult and may mean we would have to divert the same milk into commodity products which naturally attract less of a price premium.
Evolving the way we do business ensures our milk is competitive and attractive. These customers have demands on them from consumers, stakeholders and international markets, and need to buy quality product that meets their sustainability needs. They’ll buy first from the carbon-efficient milk producers who help them do this.
This highlights the Co-op’s job to do for farmers – find the best markets and customers, to get the best value for milk. And to appeal to these markets and customers, we need to make sure we’re selling what they’re looking for.
Why are these customers investing in farmers?
We’re all evolving. Reducing emissions is a journey, and these customers are investing directly in farmers to help reduce emissions.
Our strategic customers are making investments down the value chain, despite working through a time of uncertainty – for example, commodity prices like cacao have risen, but instead of rationalising costs we’re seeing strategic customers look for ways to focus on sustainability
and partnership with suppliers and farmers as they believe it will benefit them in the long term.
What does it mean for me, if I’m not getting the payment directly?
It was incredibly important for our customers, and for your Co-op team, that farmers get rewarded for their work; particularly those who are helping to raise the value and appeal of all our milk.
So, half the funding we’re receiving is going to On-Farm Solutions that every farmer who achieves the Co-operative Difference (at any level) can access. The other half is going to the Emissions Incentive payment.
These customers are essentially investing in the Co-op beyond what they buy from us (i.e. not every dollar invested equates to product for them).
I can’t think of another business that invests in emissions reduction practices that then flow into products going to competitors.
And as well as this, these customers are opting for long-term contracts – which means they’re investing in the future of Co-op farmers, and they’re committed to seeing it through. At a more operational level, it also means we’re continuing to make sure the returns to farmers are stable and secure.
We do need to make sure that their investment is being returned on, with future reductions. So, while only a few farmers might get a direct payment, all farmers are benefitting from the stability and security that having strong, valuable and long-lasting partnerships means for the Co-op.