Fonterra Cuts Farmgate Milk Price to Farmers as Hit by “Challenging” Global Dairy Market

05 May 2016 --- Fonterra, the New Zealand dairy co-operative, has reduced its forecast farmgate milk price to dairy farmers, saying the new pricing better reflects the oversupply of milk in the market which is impacting global diary commodity prices.

The changes in prices will mean that for the full 2015/16 season it will pay farmers $3.7 per kg of milk solids, down from the $4.2 per kg of milk solids it had earlier earmarked.

Fonterra is also offering farmers a loan linked to future supply to help farmers with the "current challenging conditions".

Fonterra Oceania managing director Judith Swales said the price change reflected the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar.

“The reduction in the farmgate milk price is the last thing farmers want to hear – however, it is unlikely to come as a surprise.

“With around 40 per cent of Australia’s milk exported, our ongoing message has been that Australia is not immune to the global dairy challenges, that the milk price did not reflect current reality and that farmers need to budget conservatively."

“Fonterra is committed to taking a leadership position to drive towards more transparency on milk price so that farmers have a clear line of sight to budget, plan and respond."

“At the same time, we continue to transform our business. We’ve significantly driven out costs, we’re growing our nutritionals business, building our leadership positions in retail and foodservice and we are on target to return to profit.”

Bonlac Supply Company (BSC) chairman Tony Marwood said while the price reduction would be tough for Fonterra’s suppliers, Fonterra has acted responsibly throughout the season.

“We know that Fonterra has done all it can to send the right price signals and keep suppliers informed. While today’s news will be difficult, it is good to see that Fonterra is showing its ongoing commitment to its Australian suppliers with the short term support and, importantly, longer term commitment to paying market returns.”

“Fonterra will continue to meet the minimum benchmark milk price, as per the BSC Agreement.”
“From next season this will be exclusive of the deductions that Murray Goulburn is using to recover repayments from its farmer support package, equating to a minimum of 0.20 – 0.27 cents per kilogram of milk solids for three years.

“This is especially important as it is likely a low milk price environment will continue next season and gives farmers greater clarity of a market milk price."