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Lower prices for Australian dairy farmers

Australian dairy farmers are facing lower milk prices next season. Processors have announced opening prices for season 2020-2021 that are up to 15% lower than the prices of the current season, that ends this month.

A new mandatory code of conduct forced dairy processors in Australia to publish their contracts at the beginning of June. Processors therefore had to announce their minimum total milk price including penalties, fees and bonuses for milk quality, components, volume and loyalty payments.

Most processors offered a price range between US $4.15 and US $4.50 per kg milk solids. Overall prices are down for 10% to 15%, compared to the current season. Milk processor Fonterra initially announced a price of US $4.21 per kg milk solids but has increased its price now to US $4.44, the same price that competitor Saputo offers.

Australian Agriculture Minister David Littleproud intends to engage with the Australian Competition and Consumer Commission to make sure supermarkets will be part of the new dairy mandatory code of conduct as well. Photo: René Groeneveld
Australian Agriculture Minister David Littleproud intends to engage with the Australian Competition and Consumer Commission to make sure supermarkets will be part of the new dairy mandatory code of conduct as well. Photo: René Groeneveld

Managing Director Australia René Dedoncker of Fonterra acknowledged that its opening price needs to be competitive. "We said we would review our pricing in June, and we have brought this forward due to the competitive environment we are in, which is what is driving this price."

Dedoncker emphasised that the impact of COVID-19 on economies and the market is still largely unknown and will be uncertain for some time. "Consumers' purchasing power is reduced and the foodservice industry remains impacted. This holds true today," he said.

High production costs

Bega has announced US $4.44 for dairy farmers in southern Victoria and US $4.55 farmers in northern Victoria. Bulla has said it will pay an opening milk price of US $4.37 to US $4.65. Burra Foods announced a price range of US $4.16 to US $4.44. Australian milk prices have generally increased as the season progressed in the past.

According to president Terry Richardson of Australian Dairy Farmers the opening milk prices show a cautious approach given current market conditions. He said to be hopeful that market conditions will improve because of the high production costs that farmers face.

Australian supermarket giant Coles has decided to expand its direct-sourcing model for fresh milk to Western Australia and South Australia, starting in October. The supermarket chain was already sourcing directly from dairy farmers in Victoria and southern and central New South Wales. Coles offers farmers one- or two-year contracts.

Coles has not said what its milk price will be but said it would guarantee prices and provide flexible supply options. The supermarket chain has made toll processing arrangements with dairy processors to process the milk and bottle it. Agreements are in place with Lion Dairy and Drinks, Brownes Dairy and Lactalis Australia for Western Australia and South Australia. In Victoria and New South Wales Coles has made a deal with Saputo.

Australian Agriculture Minister David Littleproud said during an webinar of the Rural Press Club of Victoria that supermarkets have devalued the dairy industry industry. He intends to engage with the Australian Competition and Consumer Commission to make sure supermarkets will be part of the new mandatory code of conduct as well.