Fonterra Australia to lift payments to dairy farmers

Fonterra Australia, the nation’s biggest dairy processor, has unveiled a boost in payments to its 1300 farmer suppliers in Australia and signalled that demand for dairy products in its key markets remains strong.

Fonterra also confirmed that its milk supply volume is up about 25 per cent compared to the same time last year, largely due to the greater number of farmers who supply it with milk, many of whom have defected from competitor Murray Goulburn.

Fonterra has increased its milk payments to farmers.Credit: Erin Jonasson

Dairy farmers who supply Fonterra will benefit from a “step up’’ of 10 cents per kilogram of milk solids, to be paid from this Friday. The increase will be backdated, to cover all milk supplied from July 1 this year.

The dairy processor said the increase takes its average milk price to $5.62 per kilogram of milk solids (MS). On top of this Fonterra suppliers receive another payment of 40 cents/kg of milk solids, which has already been announced.

But Fonterra also lowered the top end of its forecast average milk price closing range for 2017-18. The new forecast range is $5.62 to $5.70 per kilogram of milk solids, down from $5.50 to $5.80kgMS.

By way of comparison, dairy processor Murray Goulburn is paying an average farmgate milk price of $5.60kgMS to its dairy farmer suppliers. But should the proposed sale of MG to Saputo go ahead, MG suppliers will also be paid an extra 40 cents per kgMS "loyalty payment'' for all milk supplied in fiscal 2018.

Rene Dedoncker, managing director of Fonterra Australia, said Fonterra’s plants were operating efficiently and its business was growing stronger.

“We’re continuing to grow our Australian business and will soon announce the investments we are making across our manufacturing sites that will allow for an additional 500 million litres of processing capacity, which will enable us to create more value for our suppliers, as well as our wider industry,'' he said.

“We’re also exploring ways that we can work more closely with our suppliers, including whether there is a co-operative solution for our Australian suppliers.''

But Fonterra also said there had been a "softening’’ in the global dairy market.

“We remain committed to providing our farmers with clear market-based signals, and the 10 cents/kgMS reduction in the top end of our forecast range is a prudent way to reflect the impact of this global volatility on the market farmgate milk price,” Mr Dedoncker said.

“However, demand for dairy remains strong in key regions, and we are confident with our increased farmgate milk price in the current conditions,’’ he said.

Matt Watt, the company’s general manager of milk supply, said Fonterra was well placed and could pass on returns to farmers.

Fonterra’s dairy farmer supplier numbers had grown from about 1100 this time last year, to about 1300 today, he said.

“We’ve increased our milk supply this year, and that means that our business is running at optimal efficiency. Our assets are full, so our conversion efficiency in terms of our manufacturing process is running really well,’’ he said.

Asked how important it was for Fonterra’s dairy farmer suppliers to make a profit, Mr Watt said: “It’s critical…our processing facilities, none of those operate without milk. All we can ever do is generate what we can from the market, and return as much of that back to farmers as we can. But if over the long run they’re not profitable, they won’t invest in their businesses, they won’t continue to do what they do.”