Milk bidding war: Fonterra ups its farmgate price to win dairy supply

The battle between some of the world’s biggest dairy processors to gain Australian farmers’ milk in 2021-22 has intensified.

Milk being collected for Fonterra at Darnum in Victoria. Picture: Greg Scullin

New Zealand dairy giant Fonterra was today forced to lift the weighted average farmgate milk price it offers farmers for the 2021-22 season to $6.85 a kilogram of milk solids, after being trumped by its rivals on Tuesday.

Fonterra came out last month with an offer of $6.55/kgMS, just above what it put on the table at the start of the 2020-21 season, in a bid to lock farmers into contracts ahead of the this week’s June 1 mandatory dairy code deadline, by which all companies must table their minimum prices for 2021-22.

But on Tuesday the Kiwi giant’s biggest rivals came out with better offers, with Saputo offering $6.65/kgMS and Bega $6.80/kgMS in southern Victoria and $7/kgMS in the state’s north and Riverina.

Fonterra issued texts to day stating “revised price for 2021/22 is a weighted average of $6.85/kgMS.

United Dairyfarmers of Victoria president said farmers shouldn’t be surprised to see “more processors re-evaluating the current milk prices they have on offer” as competition heats up in the lead-up to contracts being signed by July 1, under Australia’s mandatory dairy code.

“For two years in a row, two days after the opening (June 1 deadline) Fonterra has lifted its price,” Mr Mumford said.

“I think they are really chasing milk, which shows there's a lot of competition.”

Mr Mumford said the bidding battle for milk, showed the benefits of advantages of the mandatory code in giving farmers a clear indication of milk prices on offer.

Of those contracts on offer for 2021-22 only Saputo’s and Bega’s allow farmers to suspend supply and move to rivals during the season.

Fonterra Australia Managing Director René Dedoncker said that when Fonterra announced its opening price on 10 May, the company informed its farmers it would review the price in June.

“We came out with an early price four weeks ago to give our farmers a clear line of sight to help them plan for the season ahead, although some of our domestic and export contracts weren’t due to be settled until this week,” Mr Dedoncker said.

“We’ve now secured favourable outcomes for these contracts, particularly with our Japanese cheese customers, and over the past four weeks commodity prices have remained strong.

“Currency appears to have stabilised between 77-78 US cents, and our recent contracts have given us the ability to hedge a portion of our currency exposure at these levels for the first half,” said Mr Dedoncker.”

The minimum price for 2021/22 has been adjusted and is set out in Fonterra’s base and seasonal rates tables and Milk Supply Agreements, which are available to farmers on Fonterra’s dedicated website at www.farmsource.com.au/pricing.