The country's newest dairy company, Dairy Trust, is expecting to accept its first milk on August 4.
Dairy Trust milk supply manager Steve McBride said the first milk would flow from 56 contracted Southland and West Otago farms from early August and he expected the company to handle about 160 million to 165 million litres for the 2008-09 season.
Dairy Trust, at Awarua, near Invercargill, is the third independent dairy company to be established in the South Island, after Synlait at Dunsandel in Canterbury and New Zealand Dairies at Studholme in South Canterbury.
Mr McBride said the Awarua plant could handle 200 million litres but supply would be closed off below that level to allow for growth within the supply base.
Second tier independent dairy companies were following a similar business model of contracting supply, using independent transport firms to cart the milk, using Fonterra to set the milk price and offering premium prices for supply on the shoulder of the season and for volume.
Like NZ Dairies, the new Dairy Trust does not require suppliers to own shares in the company, freeing up farmer capital and, for newly converted farms, reducing the amount of money a supplier may have to borrow.
Mr McBride said freeing up capital was a major reason for switching from Fonterra, where suppliers were required to own one $6.79 share for every kilogram of milk solids supplied.
He estimated 50 of the 56 suppliers had established dairy farms, with the balance having first-year conversions.
The other saving for independent companies was in contracting transport firms to collect milk rather than having to build their own transport fleet.
Mr McBride said Dairy Trust suppliers were guaranteed no less than 25c a kg milk solids under Fonterra's full payout, with that guaranteed for three years.
Supply contracts were for eight years but there was an opt-out clause after one.
"From a farmer's point of view it's very flexible."
Mr McBride said Dairy Trust wanted to retain suppliers based on performance not obligated by a contract.
"It gives farmers certainty that we have got to perform to retain them," he said.
Farmers also earn a premium for milk supplied on the shoulders of the season, August-September and April-May, for milk with a low somatic cell count and for volume suppliers.
"The larger the supply of milk from a farm, the higher the premium."
