Fonterra Australia director says price pressures will keep pushing up supermarket cost

But he said as farm gate prices and overheads continued to rise, some of the costs were certain to flow on to consumers.

Like many industries, dairy has both international and domestic issues to deal with, including ongoing supply chain disruptions, import costs rocketing from the war in Ukraine, and lagging labour shortfalls hurting milk supply. Mr Dedoncker said business was "very strong" and farmers were happy, but the industry was still in uncharted waters.

He said one only had to look to the stasis in the port of Shanghai to see the scale of the supply chain chaos.

"It's incredible the number of vessels that are stationary outside the port of Shanghai, literally thousands of boats that cannot unload and are effectively taken out of the global shipping system," he said.

"So the reason we might not be getting product or packaging here is the boats that would typically pick stuff up or bring it back here are stuck.

"We thought the supply chain was already bad enough, but I suspect it's going to get harder for us."

Mr Dedoncker said Fonterra had been strategising alternatives, but the mess would push up costs.

Director of farm source Matt Watt said the war in Ukraine had also hammered Fonterra's input costs.

"(Ukraine) are big producers of wheat, corn and fertiliser, but also 80 per cent of the world's sunflower oil. So when we think about products like Western Star spreadable, we use those oils and the cost and availability are incredibly challenging," he said.

Mr Watt said Fonterra would be opening the coming season with a farm gate price of $8.25 per kg of milk solids, effective July 1. He said supermarket prices would continue to rise.

"Farm gate prices are up about 10 or 15 per cent and that's the sort of quantum we'll see move for consumers. No one wants to pay more, but that the kind of movement we're going to see," Mr Watt said.

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Mr Dedoncker said Fonterra wanted to offer a fair price without pushing customers away. "We've got more market share and are in more households than ever before, so we want to maintain that."

He said the main issue domestically was a continuing lack of labour, which was limiting supply.

"We thought this year supply would be steady, but it actually contracted because farmers couldn't get enough labour so they dried off early. So we shouldn't plan for growth."

Mr Dedoncker said rising inflation had also pushed the company to engage with its workforce, which locked in wage rates in late 2021, before the cost-of-living exploded.

"We need to stay relevant with all of those things. We need a labour force that believe in what we do and that we'll do the right thing and that our values lead our decision making."

"The paycheck is important" to workers, Mr Dedoncker said, "but they want to believe in the company and that you're doing the right thing, so we're all over that".

"There's nothing predictable in the labour force at the moment so we're very open minded and we're having a lot of conversations and that's the only way to do it," he said.

"But if we look at the year ahead, despite all those challenges - supply chain costs, energy, labour - we're confident that we'll have another good year."

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