A deal agreed by Fonterra and Nestlé will see the food giant making additional payments to the New Zealand dairy heavyweight’s farmers who achieve sustainability targets.

The partnership between Fonterra, the world’s biggest dairy exporter, and Nestlé, the world’s largest food business, was first outlined a year ago. It involves multiple projects linked to sustainability goals and, specifically, reducing on-farm emissions.

Globally, KitKat chocolate brand owner Nestlé is investing SFr1.2bn ($1.37bn) by 2025 to advance regenerative agriculture and reduce emissions, aiming to source 50% of its ingredients through regenerative agriculture methods by 2030.

Under the terms of the agreement with Fonterra announced today (14 December), Nestlé will fund an additional payment to farmers who achieve one of the three levels of Fonterra’s “The Co-operative Difference” framework during the 2023/24 season.

Fonterra’s fiscal 2024 forecast for farmgate milk price – the price it pays to farmers – is between NZ$7.00 ($4.34) and NZ$8.00 per kilogram. Depending on the number of farmers that meet these levels, Fonterra expects the additional payment to farmers to be about 1-2 New Zealand cents per kilogram of milk solids.

Fonterra CEO Miles Hurrell said: “We are delighted to work in partnership with Nestlé to recognise the co-op’s farmers who are at the forefront of industry best practice.

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By GlobalData

“By working in partnership, we can grow sustainably together as we aim to produce lower carbon milk into the future.”

Nestlé New Zealand CEO Jennifer Chappell said: “Nestlé has sourced dairy from New Zealand for well over a hundred years and we will continue supporting farmers, alongside our partners, to develop new economic opportunities and reduce their greenhouse gas emissions.

“This move will encourage even greater action by farmers, researchers and policymakers in support of a just transition for the dairy industry, which in turn will help the industry and dairy farmers make the most of the economic opportunities presented by the shift to lower emissions.”

Updating its sustainability goals last month, Fonterra revealed an ambition of being net zero by 2050, with 2030 targets including a 30% intensity reduction in on-farm emissions.

The company says its The Co-operative Difference framework rewards farmers that meet certain criteria across five areas – environment, animals, “people and community”, milk and “co-op and prosperity”.

Previously announced initiatives by Fonterra and Nestlé in this area include working with co-partner Dairy Trust Taranaki to test solutions on a Fonterra-owned farm in Taranaki to see if, over the next five to ten years, it can become the first commercially-viable, net-zero carbon, dairy farm in New Zealand.

In October, Fonterra and Nestlé completed the sale of their DPA Brasil joint venture to French dairy major Lactalis, a deal originally announced a year ago but held up by a regulatory approval process.