Australian dairy farmers supplying Fonterra are getting an opening weighted average milk price of A$8.60/kgMS for the new season or around NZ$9.26/kgMS – NZ74c less than New Zealand suppliers, based on the current exchange rate.
The price is made up of the minimum monthly rates set out in milk supply agreements and based on a mix of fat and protein and assumes standard production and quality incentives.
In New Zealand, Fonterra shareholders will receive an opening forecast milk price of $10/kgMS this season. However, Fonterra has announced a wide range forecast of $8 to $11/kgMS for the season.
In a letter to Australian suppliers, Fonterra Oceania managing director David Breckenridge notes that their opening price is higher than the current season, reflecting improved global market conditions, although dampened by a continued soft domestic outlook.
However, he adds that geopolitical tensions and potential trade disruptions, along with currency volatility continue to create uncertainty for the longer-term outlook.
“Global demand has shown signs of growth, with constrained global supply driving an uptick in global prices throughout the year. Australian dairy exports have strengthened on the previous year in value and volume. These improvements have been supported by a return to balance between local and global dairy prices and a favourable, yet volatile Australian dollar.”
But the domestic Australian market, where Fonterra directs majority of the milk, remains challenging. Inflationary pressures have yet to fully ease, and segments of Australian consumers continue to chase value through lower-cost dairy products. Foodservice channels, both locally and globally, are facing a multi-year recovery as even lower-cost restaurants are challenged as households eat out less.
“While there’s room for local demand to lift, we remain confident in the strength of our business and ability to be competitive on price as we navigate these conditions throughout the season. This is underpinned by the diversity of multiple dairy product types, sales channels, and markets that we sell into.”
Breckenridge says Fonterra Oceania is committed to paying a competitive milk price throughout the season.
He also spoke about the divestment of Fonterra’s Oceania and consumer businesses- Fonterra is looking at a trade sale or a partial float of the assets.
Breckenridge told suppliers that their milk contracts remain one of Fonterra’s most valuable assets.
“And we assure you they will carry through as part of any trade sale or Initial Public Offering (IPO).”
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