Farmers slash milk supply to Fonterra following price cuts

Daniel Palmer
JUNE 17, 2016
THE AUSTRALIAN
Bracknell dairy farmer Lindsay Thompson supplies milk to Fonterra and has been hit hard by price cuts.
The dramatic slashing of farmgate milk prices by Fonterra has had an immediate impact on supply by local farmers, with May milk collection plunging 18 per cent compared to last year’s corresponding period.
The fall represents a sharp deceleration from a lacklustre April, when production slid 5 per cent.
It follows a backdated price cut from Fonterra on May 5, which sees the price offered to its network of 1100 farmer-suppliers slashed from $5.60 a kilogram of milk solids to between $4.75 and $5.
The move by Australia’s second-largest milk processor was a response to the same price cut from the nation’s largest processor Murray Goulburn just a week beforehand.
Fonterra’s milk collection for the financial year-to-date is down just 3 per cent, highlighting the rapid departure of supply over the past couple of months, which was first blamed on dry weather in Victoria and — more recently — tied to the shock retroactive price cuts in Victoria.
“Production has been heavily impacted by the reduction in Australian milk prices to align with global dairy prices,” the New Zealand-based dairy giant said.
It has been reported a number of farmers will be forced out of the market by the price cuts, while Victorian saleyards have seen a sharp increase in the number of dairy cows offered for slaughter as less productive animals are culled.
The impact of a farmer cull is already showing through Fonterra’s results, as disheartened Murray Goulburn investors nervously await the Victorian group’s full-year results after three downgrades since its IPO last year.
The activity came as Fonterra announced its current Australian chief Judith Swales had been rewarded with an enlarged role at the group.