South-west dairy farmers reaping benefits of competitive milk market as price rises

With almost 200 farms in the region converting from dairy to beef in the past couple of years, milk has never been as sought-after.

Fonterra announced a third step-up on Thursday, bumping its price for milk solids to an average farmgate milk price of $7.30 a kilogram of milk solids, to be back-dated from July 1 last year.

It's significantly higher than when some processors dropped the price to $4.60kg/ms six years ago, sparking the dairy crisis.

Former long-time Warrnambool Cheese and Butter company boss John McLean said that price was generally speaking on a par with what the other main companies in the region were offering - Saputo, Bega and Union Dairy Company.

"It's a very competitive milk market," he said.

"I've never seen it this competitive. And in addition to those main companies you have a lot of brokers on-selling to Fonterra and Saputo, with Union in part acting as a broker.

"You have Coles (supermarket) buying milk, and Woolworths and smaller co-ops as well.

"It's a great situation for dairy farmers. Absolutely it's good for them."

The current price being offered by the Union Dairy Company is $7.35kg/MS.

Mr McLean said it was only a couple of years ago Fonterra, Murray Goulburn and WC&B were the sole players in the region.

"Now there are the main companies, brokers and smaller co-ops. I saw a couple of signs on farm gates near Port Fairy for Floridia, which is an Italian cheese company," he said.

"Farmers are reaping the benefits of the competitive market."

The former WC&B chief executive said it was a changing world.

"Not that long ago we were talking about 11 or 12 billion litres of milk production, but that's back to now about 6.5 billion," he said.

"Many states are just producing enough, or not quite, for their own domestic market.

"During Victoria's peak production the state was split into about equal thirds, with northern Victoria, Gippsland and the Western District all contributing.

"But with the sale of water rights in the north things have changed enormously.

"It was quoted to me the other day that there have been something like 186 farms in our region which have gone out of dairy into beef.

"All those changes have put farmers in a very strong position. It's up to milk companies now to extract their prices out of the market."

Fonterra Australia managing director René Dedoncker said this week's price rise came on the back of continued strong dairy prices coupled with the good performance of Fonterra Australia's business.

"We know the dry summer in many regions and higher input costs on farm are impacting profitability, so we hope that passing on this increase now will help offset some of these costs," he said.

"Although we are seeing historically high commodity prices and a weaker Australian dollar, the decline in milk production in Victoria and Tasmania is limiting the upside from export markets.

"We also continue to see the impacts of the global supply chain disruption on our business with no immediate end in sight, and more recently the domestic supply chain has been severely impacted by COVID."

IN OTHER NEWS:

Listen to our new series The Folkie Podcast, only on Spotify.

Our journalists work hard to provide local, up-to-date news to the community. This is how you can access our trusted content:

Now just one tap with our new app: Digital subscribers now have the convenience of faster news, right at your fingertips with The Standard: