Fonterra's Australian head has told the annual Melbourne Dairy Australia Situation and Outlook breakfast the company is not interested in the "volume game".
Fonterra Australia's managing director Rene Dedoncker said the company was "demand ready".
"I am not interested in the volume game, at all," Mr Dedoncker said.'
"We have very clear choices as to where our milk goes, we supply certain categories and customers, so we are rightsizing the milk pool to those choices.
"And it's working."
Mr Dedoncker said the decline in milk supply meant the company had to have options, with 75 per cent of production staying in the domestic market.
"We have very good brands, connections with customers, repeatability and stability - the 25 per cent of supply that leaves the country is where we have some optionality," he said
"We will choose Japan, for cheddar, we will choose our paediatric customers, we will chose the US, where there are a few needy customers."
While growth would be good, he said, "just one year of stability would be lovely, just one year of a stable milk pool would be fantastic."
Mr Dedoncker said he'd just completed a series of regional supply meetings, at which about 500 farmers attended.
"There was not a single question about milk price, which was interesting - it's all about margin, its not about milk price," Mr Dedoncker said.
"Our farmers need to make a buck, processors need to make a buck, retailers and food services and chefs need to make a buck."
He said there needed to be very clear conversations about how income was shared through the value chain - "at the end of the day, someone has to pay - that's the challenge."
He said cheese and butter sales were doing well, while food service operators were buying more product than they ever had.
"We are enjoying everything we learnt, in lockdown, to be better chefs at home and we do look for good ingredients - that seems to have stuck," he said.
The Dairy Australia Situation and Outlook report said cafe and restaurant spending had continued to boom, with the three months until February topping not only the same period in 2021, but also pre-pandemic levels.
"This is a significant shift from the past two years, where strength in the takeaway food and quick service restaurant sector has driven foodservice sales," the report said.
While fewer meals were being cooked at home, the value of milk, cheese, yellow spreads and yoghurt had all increased in proportion to the volume sold, the report said.
"In other words, food inflation has arrived in the dairy case," the report said.
"In the 12 weeks until March 27, the average per unit prices of fresh milk and long life milk increased 5.4 per cent and 2.9pc respectively compared with the same period the previous year."
Australian Dairy Farmers president Rick Gladigau said he was looking forward to working with the incoming federal Agriculture Minister Senator Murray Watt.
Mr Gladigau said the Senator was not very well known.
"I've asked a few people 'what do you know about Murray Watt'?" he said.
"And they've gone 'who?", and I've said, no Watt."
But he said Senator Watt did not come with any preconceived ideas on agriculture.
"Here is a starting point where we can get in, as an industry, and work on this guy and say this is what we need - we have a massive labour shortage," he said.
"We are seeing fuel prices and fertiliser skyrocket."
He said the sector could go to the government and tell it current policies were not working.
"What are we going to do, as a country, so we can slow this up and actually be competitive in the world as well as have people who want to farm."
Mr Gladigau said the industry needed to encourage "the next generation to want to milk cows."
He gave cautious backing to an increase in the retail price of milk.
"I baulked when someone said milk had to be $2 a litre - we have just come out of $1 a litre milk and we've fought that for eight or nine years," he said.
"But is $2 a litre a lot? When you compare it to the plant-based products, they are all that, and more, and they don't provide the nutrition we have it in our products."
He said $2 a litre milk was not out of the question.
"But we need to market that as to why it has to be $2 a litre and we can't just say, because of input costs - we also have to sell the value of the product," he said.
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