Dairy farmers already facing reduction in milk price as they absorb divestment shock.
Australia’s dairy farmers face a reduction in farmgate milk prices of $1/kg or slightly more as they head into a new season.
Fonterra Australia’s 550 suppliers also face the uncertainty of company divestment and a possible new multinational owner in the next 12 to 18 months.
RaboReseach dairy analyst Michael Harvey expects Australian milk prices for the new season to be around $8 to $8.20/kg milksolids because of lukewarm market conditions at home and abroad.
Australian dairy processors have a June 3 deadline to announce their new season offers.
Dairy farmers can and do move between processors from season to season where they are in overlapping collection areas, like western Victoria, Gippsland, and northern Tasmania.
Contributing to a softer milk price outlook has been an increase in Australian milk production, up to 8.35 billion litres in the 2023-24 financial year to end June.
The mid-season growth of 2-3% has improved the production forecast from 8 billion to 8.35 billion litres, according to industry body Dairy Australia.
This will be the biggest milk output in 30 years, as overall production has declined about 1 billion litres in that time.
“Since the previous update end March, there has been a continuation of timely rainfall and a transition back to more average weather conditions in a lot of regions,” analyst Eliza Redfern said.
The upswing in milk production was not uniform with a drier-than-average autumn in southwest Victoria and Tasmania offset by wetter conditions elsewhere.
An absence of floods in dairying districts has also helped boost production, particularly in the colder months when Australian output is highest.
Dairy Australia expects the 2024-25 season to produce about 8.3 billion litres.
Fonterra Australia collects about 1.4 billion litres annually from 550 farms.
Australia-based managing director Rene Dedoncker said all milk supply contracts would be included in a possible sale of the Australian operations.
“These contracts are vital to our business. Any purchaser of the business would then be obligated to comply with the terms of agreements until expiry of the term of the agreement.
“Fonterra in Australia is committed to continuing to operate as normal, including working with our farmer suppliers, continuing to produce and deliver dairy products for consumers and customers, and supporting the communities in which we operate without disruption.
“We are committed to keeping our people, farmers and community updated as this process progresses and will share any new information as soon as we can.”
Fonterra has eight manufacturing sites in Victoria and Tasmania.
Australia Dairy Farmers president Ben Bennett, farming in southwestern Victoria, said Fonterra’s divestment proposal was unsettling right before the new milk price announcements.
He told the Weekly Times newspaper in Victoria that farmers would prefer to see an Australian buyer but much could change in the coming months.
“Maybe this is the dramatic news that gives Australia a wakeup call about the state of the dairy industry,” Bennett said.
“There are many issues about the sustainability of farmers, processors and paying a fair price for dairy products at the retail level.
“Of course, farmers would want to see an ethical business, preferably an Australian business, take on Fonterra’s assets, but it’s early days.”
The Business Council of Co-operatives and Mutuals (BCCM) said the Fonterra intention is another step in a sorry tale of dairy industry consolidation.
Fonterra wants to grow further value for its shareholders, but they are in New Zealand, not Australia.
Norco is the only dairy co-operative left in Australia.
“There is a public policy imperative to understand ownership and maintain domestic sovereignty over food supplies,” the BCCM said in a statement.
“Only Australian co-ops can guarantee this.”
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