Fonterra’s NZ farmgate passes Australia’s equivalent price

Fonterra has lifted its farmgate price in New Zealand — now overtaking the prices paid to Australian farmers.

Fonterra has lifted its farmgate price in New Zealand for the second time this season – overtaking static prices offered in Australia.

Farmgate prices in Victoria hover around the $8.30 per kilo mark from Fonterra and most other processors, meaning the latest NZ rise puts NZ farmers ahead by about 30 Australian cents per kilo milk solids.

Management at the Auckland-based processor on Monday raised the midpoint of the NZ farmgate price from NZ$9.00 (A$8.15) to NZ$9.50 (A$8.61) per kilo milk solids.

Fonterra also announced a narrowing of the forecast range from NZ$8.25 - NZ$9.75 (A$7.48-A$8.83) per kilo milk solids to NZ$9.00-NZ$10.00 (A$8.15-A$9.06) per kilo milk solids.

This week’s revised price means NZ farmers are being paid more than their Australian counterparts for the first time since the mandatory dairy code of conduct was introduced four years ago.

Fonterra chief executive Miles Hurrell said improved international trading conditions had led to the NZ price revision.

“This demand has been seen out of China, where there are indications domestic production is below expectations, and also in Africa, the Middle East and southeast Asia,” Mr Hurrell said.

“Looking ahead, we’ll closely monitor any factors that could have an impact on supply and demand.

“This would include any significant change to milk supply in New Zealand over the second part of the season which could lead to pressure on global milk prices.”

This week’s announced price rise is the second lift to the NZ farmgate this season with a late September rise of NZ50c/kg, at the time placing the Kiwi midpoint at NZ$9/kg milk solids.

Fonterra’s Australian-based farm source director Matt Watt said the processor had a demonstrated a “good track record of passing on increases to farmers.”

“We are committed to a bi-monthly review process, and the next review is scheduled to take place in December,” he said.

“Any step-up in Australia will guarantee a new minimum price for the season.”

Last week, the headline figure on the Global Dairy Trade index lifted by a strong 4.8 per cent, to sit at US$3997 (A$6118) a tonne.

Mr Watt said Australia and New Zealand were different markets and “prices were calculated very differently.”

“Around 95 per cent of New Zealand’s milk is exported and the product mix is different,” he said.

“It is particularly influenced by GDT prices which are a reflection of global demand and supply for Whole Milk Powder, Skim Milk Powder and cream-based commodity prices.

“Australia is predominantly a domestic market – with around 75 per cent sold locally and is more weighted to consumer products such as cheese and butter.

“These differences mean there is often a lag or disconnect between global commodity values and the milk price in Australia.”

Meanwhile, Mr Hurrell also reaffirmed Fonterra’s decision to divest its global consumer business which includes its Australian operations.

The initiative was first announced in May and covers well-known brands such as Anchor, Mainland, Fernleaf, Western Star, and Perfect Italiano.