UPDATE 1-NZ's Fonterra to pay farmers more for sustainable dairy

(Adds details from statement, background)

June 23 (Reuters) - Fonterra Co-Operative Group Ltd will incentivise sustainably produced dairy by paying farmers more for such products, the world’s largest dairy exporter said on Tuesday.

Sustainable dairy products have limited harmful impact on the environment and animals, and have gained popularity as consumers become more conscious about how food is sourced.

Fonterra said it would pay up to 10 cents per kilogram of milk solids (kgMS) from the June 2021 dairy season to farms that meet its sustainability and value targets.

“We’ve always paid our farmers based on the value that milk provides to the co-operative,” Chief Executive Miles Hurrell said in a statement.

“The reality is that the drivers of value are changing, and we need to reflect that. Our customers want to know that the products they are buying are not only safe, but also produced sustainably.”

According to the World Wildlife Fund, greenhouse gas emissions from dairy cows and their manure, water pollution and unregulated farming and feed production are some of the risks associated with unsustainable dairy farming.

Global consumer conglomerates including Nestle and Unilever already follow frameworks to source sustainably produced goods including dairy, vegetables and oils.

Fonterra said the payment would be funded from the total Farmgate Milk Price, or the price the company pays farmers for milk for the upcoming season.

The precise payment structure would be confirmed in the coming months. (Reporting by Shashwat Awasthi in Bengaluru; Editing by Sandra Maler and Stephen Coates)