It has also announced the Fonterra Australia Support Loan, which offers a loan of up to 60c per kgMS that is repayable from FY18 onwards for those who choose to take up the loan. This provides suppliers with options to help deal with the current challenging conditions, and gives them the ability to receive an equivalent of $5.60 per kgMS for the current season.
Managing Director Fonterra Oceania Judith Swales said the price change reflected the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar.
“The reduction in the farmgate milk price is the last thing farmers want to hear – however, it is unlikely to come as a surprise.
“With around 40 per cent of Australia’s milk exported, our ongoing message has been that Australia is not immune to the global dairy challenges, that the milk price did not reflect current reality and that farmers need to budget conservatively.
“Fonterra is committed to taking a leadership position to drive towards more transparency on milk price so that farmers have a clear line of sight to budget, plan and respond,” said Ms Swales.
Fonterra has continued to meet its commitments and honour the agreement with its suppliers through the BSC Milk Supply Agreement.
“At the same time, we continue to transform our business. We’ve significantly driven out costs, we’re growing our nutritionals business, building our leadership positions in retail and foodservice and we are on target to return to profit,” said Ms Swales.
Bonlac Supply Company (BSC) Chairman Tony Marwood said while the price reduction would be tough for Fonterra’s suppliers, Fonterra has acted responsibly throughout the season.
“We know that Fonterra has done all it can to send the right price signals and keep suppliers informed. While today’s news will be difficult, it is good to see that Fonterra is showing its ongoing commitment to its Australian suppliers with the short term support and, importantly, longer term commitment to paying market returns.
“Fonterra will continue to meet the minimum benchmark milk price, as per the BSC Agreement.
“From next season this will be exclusive of the deductions that Murray Goulburn is using to recover repayments from its farmer support package, equating to a minimum of 0.20 – 0.27 cents per kilogram of milk solids for three years.
“This is especially important as it is likely a low milk price environment will continue next season and gives farmers greater clarity of a market milk price,” said Mr Marwood.
Ms Swales said Fonterra was firmly committed to supporting farmers, despite the obvious business challenges the milk price reduction would cause.
“We have the right strategy and we are delivering on a clear, sustainable plan. Work is underway to rebuild our Stanhope cheese plant with 50 per cent extra capacity and we are growing our nutritionals business with Bellamy’s and Beingmate.”
“Our priority is ensuring a long-term sustainable business for Fonterra and for our farmers that supply us,” concluded Ms Swales.