Lactalis FY24 milk price offer quantifies to $60,000 drop in farm gate income

Dairy processors in Australia have to publicly announce their FY24 prices by June 1.

The ACCC has recently released an updated Mandatory Dairy Code of Conduct guidance for the industry, claiming it will enable farmers and processors to better understand their contractual rights and obligations.

The Mandatory Dairy Code of Conduct requires processors to publish their contractual prices and, consequently, the code has brought more transparency to milk pricing and certainty for Australia's farmers.

One of the benefits of the Australian milk production industry, compared to global competitors, is the farmer's security of knowing their expected income for 12 months, which enables short- and medium-term business planning.

However, input costs - including fertiliser, transport, animal welfare products and electricity - continue to challenge the profitability and viability of farm businesses.

While a couple of dairy processors have announced their prices early, there are tensions around expectations for a high milk price.

United Dairyfarmers of Victoria president Mark Billings has said $9/kg was not unreasonable, while eastAUSmilk chairman Matt Trace has also said he expects a high opening gambit from milk processors.

At least one dairy market analyst has forecast a reduction in milk supply in FY23, will continue in FY24.

Australia's milk production is tipped to fall 3-5 per cent in 2023-24 on top of a forecast 6pc fall for the full 2022-23 season, according to Freshagenda's Southern Australian Milk Price Outlook report released on earlier this month.

Meanwhile, in New Zealand, Fonterra has announced a mid-point offer for milk in FY24 of $8/kg, down $0.20 on the current year; while Australia's dairy farmers await a local offer.

This week Lactalis announced a $0.05/litre drop in milk price for FY24, down to $0.82c/litre, catching dairy farmers off guard in Queensland and northern NSW.

According to eastAUSmilk ceo, Eric Danzi, NSW and Queensland dairy farmers are angry about the surprise announcement.

"Lactalis announcing a $0.05/litre drop in farm gate milk price for 2023/24 represents about a six per cent drop. Per farm, this means an income about $60,000 lower than FY23," he said.

"Given the massive shortage of milk across Australia, dairy processors should realise if they pay a bit more for milk, they'd get more production."

Victorian dairy processors are buying milk from farmers in NSW and Queensland, adding to their own costs.

"Victorian dairy processors are sending trucks from Victoria to Malanda, near Cairns, to collect milk.

"Buying milk from farms anywhere north of Sydney adds costs, I'd say conservatively $0.10/litre, more likely in the order of $0.15/litre in transport costs by road."

"Many Lactalis suppliers have reached out to me expressing their disgust.

"Given the massive shortage of milk in Australia, especially in Queensland and NSW, this announcement makes no sense at all.

"It appears to be a poorly thought-out strategy designed to suppress milk price. It is now likely that the strategy will backfire on Lactalis."

Mr Danzi believes other competitors - Bega, DFMC and Norco - are unlikely to follow Lactalis's strategy - in fact, they are likely to benefit.

"Lactalis is likely to lose a lot of milk to other processors from their bold strategy.

"I strongly encourage all Lactalis suppliers speak to all other processors and be blunt about what price would get them to immediately sign a contract with another processor.

"Most dairy farmers would tell you that given cost increases, anything less than a 3c/L price increase is tokenistic and not worth signing a contract for.

"I strongly encourage dairy farmers, both Lactalis and other dairy farmers, that if a processor is prepared to offer a reasonable price increase on this year's price, be proactive and sign a contract with then immediately.

"Processors who are proactive and prepared to offer reasonable price increases early must be rewarded with farmers signing contracts."

Earlier this month, Australian dairy processors forecast business rationalisations in the face of tough market conditions, citing the need to secure their financial viability and workforces.

Processors say they are being squeezed by rapid growth in competition from imports, declining global prices, falling milk production and being locked into paying high farmgate prices.

Their comments are further fueled by a lower global opening price for high value dairy products, and a new United Kingdom-Australia trade agreement that comes into effect tomorrow (May 31, 2023) and will likely see Australian retailers awash with imported cheese and other dairy products.

"Australian dairy farmers have to compete against countries that favour their farmers with heavy subsidies," Mr Danzi said.

"Locally grown and made products are competing against imported products that arrive in Australia at a lower price point because of those subsidies."

Want to read more stories like this?

Sign up below (select Dairy News) to receive our e-newsletter delivered fresh to your email in-box twice a week.