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Fonterra Says Dairy Farmers Must Face Reality Of Low Prices
May 19, 2016

Dairy giant Fonterra says the milk price bubble it has been warning about has burst and low prices are here to stay.

After Agriculture Minister Barnaby Joyce described the low prices paid to producers as “an anathema” and promised some form of indirect assistance when he visited farmers on Wednesday, Fonterra managing director Judith Swales said the industry “has to get real about the milk price”.

“The fact is that, for some time, the price paid to Australian dairyfarmers for milk did not reflect the reality of the international market,” Ms Swales writes in today’s The Australian Financial Review. “A global over-supply of dairy and softer demand has weakened global dairy prices.

“Around the world, dairyfarmers who are exposed to the global market have had to face the reality of lower prices for their milk. With around 40 per cent of Australian milk exported, the situation for Australian dairyfarmers is no different.

“The Australian dairy industry has to get real about milk prices, and find ways to adjust to the new lower milk price environment that we expect is likely to continue next season.”

Dairyfarmers in Victoria are struggling to break even after Murray Goulburn slashed raw milk prices in April from $5.60 to $4.75-$5 and revealed it would struggle to meet its net profit forecast. Fonterra followed by slashing its own raw milk price from $5.60 to $5 a kilogram early this month.

The government will not heed calls from struggling producers to impose a 50ΒΆ-a-litre milk levy on consumers.

“We’re not going to impose a milk tax in the middle of a federal election campaign,” a source said.

In 2000, the Howard government imposed a 11ΒΆ-a-litre levy when it deregulated the industry. This was not abolished until 2009.

On Monday, Prime Minister Malcolm Turnbull ruled out doing much at all, referring to the government’s plans to introduce an effects test into competition law that was designed to prevent the misuse of market power by big business. At the same time, he declined to back his Victorian MP Sarah Henderson after she accused processors of “corporate thuggery”.

“The Australian Competition and Consumer Commission is dealing with the issues,” he said.

“We’re in the course of strengthening section 46 [of the Competition and Consumer Act] to ensure large companies treat smaller ones and smaller suppliers more equitably but I’m not going to go beyond that.”

Mr Joyce has indicated assistance such as the farm household allowance, concessional loans and rural financial counsellors.

Ms Swales said Fonterra would help its farmers with cashflow support and assistance for those doing autumn calving. She also said they needed better information on prices.

But she said Fonterra had to drop its price because “we have a contractual obligation with the Bonlac Supply Company to buy milk from farmers at a price not less than the price paid by the leading Victorian processor, which is currently Murray Goulburn”.

“The price we were paying did not reflect what was happening around the world. We had been sounding the warning bells for some time.

“We were a lone voice and accused of talking the price down when, in fact, we were being responsible pointing out the situation was unsustainable.

“We are now seeing what happens when the bubble bursts.”

By: Phillip Coorey and Primrose Riordan


Spring 2018