The global demand for organic milk has been dramatically underlined by Fonterra's opening 2016-17 season forecast for its organic suppliers of $9.20 per kilogram of milksolids.

The price is a contrast with the present farmgate price for conventional farmers of $3.90 per kg/MS.

Paul Grave, Fonterra's head of co-operative affairs, Waikato, says while the opening forecast organic milk price is a big step up from the $5.65 per kgMS payment organic farmers currently receive (the organic fixed premium on top of the farmgate milk price), it reflects consistently high prices for organic milk products in its global markets.

Early this year organic milk powder was selling for more than NZ$14,000 per tonne. This compares with the current price for conventional whole milk powder of NZ$3158.

Fonterra says it is hoping to process an extra 600,000 kg/MS during the next year.

The new price follows a change in the way Fonterra pays organic farmers. It now pays them either through an independent organic milk price linked to market returns, or – for possibly only the next two years - the current top-up system.

Farmers had pushed for the market-linked change.

Grave says there are more than 50 farmers supplying Fonterra with organic milk. While more will be tempted to join, the co-operative has to be careful.

"We want to manage the growth, we don't want it to go wild," Grave says.

It takes three years to farmers to convert from a conventional to organic system, and Fonterra assists farmers with a premium of 45c during conversion to certification.

Grave says would-be organic farmers need to be aware of the demands of certification. Representatives from certification agencies from the United States, Europe and China make regular visits to farms and need to see documentation.

In contrast to the volatility of the price of conventional milk, organic milk prices has been stable since 2013, and will continue to be so, Grave says.

Greens spokesman Steffan Browning welcomed the news of the high price.

"This will encourage more farmers to convert to organics and is a signal of what we've been saying - there is a market for organics," Browning says.

He called on Fonterra to suspend the closure of its Kaikoura factory, saying no South Island organic milk was at present being collected but farmers were interested in doing so and could supply the plant.

Grave says the marketplace for organic milk is competitive and the market-linked organic milk price will help Fonterra to secure a steady stream of organic milk.

Browning says Fonterra will be trying to stem the flow of farmers to the Organic Dairy Hub Co-operative of New Zealand, which supplies milk to boutique producer Lewis Road Creamery.

Organics champion Janet Fleming says Taranaki's 13 certified organic farmers will be thrilled to receive a market-linked price for their production.

About 10 dairy farmers converting to organics in the region would continue to receive the 45c premium while they went through the three-year conversion process.

The announcement vindicated the decision by her and husband Steve to convert to organics in 2004 and to remain Fonterra suppliers.

"It's satisfying to be paid for what our production is worth, not for what conventional production is worth."

"The world market for organics is stable, but as organic producers we have still been affected for the last three years by the volatility of the milk price for conventional milk."

Friday's announcement was recognition by Fonterra's board and management team that organic milk was the co-operative's highest value product. "Organic milk is at the top of the sales pyramid," she said.

As Taranaki's representative on the Fonterra Organic Farmers Advisory Group, she expects a surge in the number of farmers keen to convert to organics and says Fonterra will soon call for expressions of interest.

Fleming says all farmers would benefit from the growth of the co-operative's organics programme and organic milk production would now contribute to the Fonterra dividend. All costs associated with setting up the programme had been met. Grave says the margins the co-operative is achieving on its organic milk products are similar to some of its highest-earning consumer and food service products.

Fonterra's organics business had been consistently profitable recently and had paid back its investment.

- Stuff