Fonterra's opening price aims to rebuild trust

Building: Fonterra Australia managing director René Dedoncker said its opening milk price for next season aims to encourage suppliers to increase their milk production.
Building: Fonterra Australia managing director René Dedoncker said its opening milk price for next season aims to encourage suppliers to increase their milk production.

Fonterra has announced an opening average milk price of $5.30 per kilogram of milk solids (kgms) for the 2017-2018 season and clearly signalled the end of a previous link between its price and that of its beleaguered rival, Murray Goulburn (MG).

Breaking the link: Fonterra's opening milk price for the 2017-2018 season is well ahead of that of the former price benchmark setter, Murray Goulburn.

Breaking the link: Fonterra's opening milk price for the 2017-2018 season is well ahead of that of the former price benchmark setter, Murray Goulburn.

MG, Victoria’s largest processor, had previously been the price setter in the Australian dairy scene with Fonterra usually striving to match it.

However MG’s slashing of its milk price last April and its opening price for the 2017-2018 season of $4.70 kgms has left its milk price trailing that of most other dairy processors in Australia.

Bonlac Supply Company (BSC), which represents dairy farmers supplying Fonterra, said it no longer saw the current Benchmark Agreement against MG as “appropriate in today's Australian dairy market.”

BSC Tony Marwood chair said it was “progressing towards a new milk price model for the 2017-2018 season and beyond.”

“Fonterra has shown that it is running its own race by setting a price based on its own product mix and what that mix earns in the market,” Mr Marwood said.

“Now is the right time to review the benchmark obligation,” he said.

“We’ve been working with Fonterra on a new price mechanism that will give farmers greater clarity as to how their price is set, and we look forward to sharing that with farmers at the July supplier meetings,” Mr Marwood said.

He said Fonterra’s opening price of $5.30 plus an additional 40 cents kgms for continuing and new suppliers meant farmers would receive $5.70 from the start of the 2017-2018 season.

Fonterra had also shown its commitment to improve its communications with suppliers by being the first processor to give an indication of price four weeks ago, Mr Marwood said.

Fonterra Australia managing director René Dedoncker said its opening price and forecast closing range reflected its improved product mix and the strengthening of world dairy prices.

Mr Dedoncker said the company needed to grow its milk supply for its upgraded Stanhope cheese plant in northern Victoria and hoped the additional 40c/kgms payment would encourage suppliers to increase their milk production.