Project

Baker, Rachel

Implementation of the Fonterra Palm Kernel Guideline


Executive Summary

The use of Palm Kernel (PK) as a supplementary feed for NZ dairy cows has seen unprecedented growth over the past decade, despite volatile milk prices. Demand has been driven by system intensification, a production focus and climatic challenge. The availability, flexibility and cost- competitiveness of PK make it a popular choice with dairy farmers.

New Zealand imports around a third of total palm kernel produced and is the largest sole importer. Palm kernel is a by-product of the palm oil industry, which is considered to have an adverse global environmental footprint associated with deforestation, biodiversity loss and greenhouse gas emissions, particularly in Indonesia and Malaysia.

In response to an increasing amount of PK fed to dairy cows by its suppliers, Fonterra Co-operative Group (Fonterra) announced the introduction of a PK guideline in September 2015, recommending a maximum feeding level of 3 kg/cow/day to future-proof the co-operative as a supplier of pasture- based milk. Further communication indicated a milk test was being developed to assess PK feeding levels. There was a likelihood that high PK feeding levels were causing milk composition changes that could cause issues with manufacturing and/or customer specification requirements.

The aim of this project was to understand individual farmer use of PK, their understanding of the Fonterra PK Guideline, the changes and time-frame required for implementation and the perceived impact. Their views on the likelihood of a future nil PK directive and an associated transition time were also explored.

Ten Fonterra farmers were interviewed who were feeding above the PK guideline level for all, or a part of, the season. In addition, industry professionals (industry body and farm consultants) were also interviewed to give a broader perspective to how implementation could be achieved and what the impact would be.

All farmers rated PK as important or very important to their farming business, despite using it in different ways and for different reasons. Findings indicate farmers use PK as a base feed to underpin stocking rate or predictable climatic challenge, a buffer for vagaries of pasture growth or as an emergency response to an adverse climatic event, or a combination of these uses.

Interviews found implementation of the guideline is achievable. For most farmers it is anticipated change will be incremental rather than transformational. Options to reduce the level of PK fed to guideline levels included:

  • ? Reducing feed demand through stocking rate, culling and drying off decisions,

  • ? Reducing feed supply by non-replacement of PK above guideline levels

  • ? Increasing feed supply from home-grown feeds or alternative imported feeds

    The impact of the guideline on farmers will depend on the degree of change required to adhere to the guideline and the climatic challenges they face. The impact could be minimal or even negated if other aspects of the farm feed system are optimised.

    There is a need for farming systems to increase their resilience to climatic challenge and adverse events. Although System 4 & 5 farmers (high input) would be most immediately affected by the guideline, it was anticipated System 1 to 4 farmers (nil, low and medium input) would be made most

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vulnerable, particularly in challenging or adverse climatic events. It is recommended Fonterra communicate a PK policy for adverse climatic events as this was considered to be the most likely challenge to compliant feeding thresholds.

Farmers indicated a twelve month period would be required for transition. It is recommended Fonterra adopt this time-frame for compliance and provide milk test results during this period. It is anticipated there will be variation in feeding levels for compliance both between farms and within individual farms, due to seasonality and management differences. Farmers should be encouraged to challenge the milk test during transition to find their individual farm feeding thresholds.

A consistent message from interviews was the need for Fonterra to provide more clarity and proof around what they were asking farmers to do. Farmers were unclear whether the motivation for the guideline was milk composition creating processing issues or customer expectations around sustainability or product specification, or a combination of both. It is recommended that Fonterra provides relevant research around the key drivers of the guideline and clarity around factors that will influence farmer management.

Seven out of ten farmers and four out of six industry professionals felt Fonterra was unlikely or highly unlikely to introduce a nil PK directive in future. Reasons given were that adherence to the guideline would overcome milk processing issues, a perceived lack of consumer willingness or ability to pay a premium for a PK-free product and the risk of supply loss to competitors for Fonterra. Those that believed a future nil PK directive was likely, thought so because of issues with customer perception and sustainability. Farmers felt that if a nil PK directive was made, they would require 2-3 seasons to transition.

Although beyond the scope of this project, interview findings have also led to broader recommendations for Fonterra to develop a "Know Your Customer" programme, develop a NZ grass- fed certification standard and investigate a 'grass-only, home-grown' specialty milk pool.