Australian farmgate milk prices too high, say processors

They say Australian prices are 20 per cent higher than New Zealand prices and are unsustainable.

The Australian Dairy Products Federation made the public salvo about prices as the June 1 deadline for processors to release 2024-25 prices looms.

The deadline is set under the mandatory Dairy Code of Conduct.

Tensions between farmers and processors over the code have been growing in recent months.

ADPF chief executive officer Janine Waller said the high cost of raw milk was unsustainable without a change in market conditions - saying the whole supply chain needed to be competitive.

"Seventy-one per cent, or more than 6 billion litres, of Australia's total milk production is directly trade exposed to global commodity markets and exchange rates," she said.

"This means our dairy products must compete with imports into Australia and exports around the world."

Ms Waller warned factory closures were a consequence of the pressure on processors.

In the past 18 months 11 dairy processing businesses have publicly announced a closure, including Saputo and Lactalis.

"Paying a price for raw milk that is higher than the value that can be derived from a manufactured dairy product is not sustainable long-term," she said.

"Exits from the industry and reductions in processing footprints to better match supply are necessary to ensure dairy processors can continue to operate.

"They're doing all they can to keep their doors open, protect jobs, farmers and continue contributing to regional communities throughout Australia."

Ms Waller said Australian milk prices were disconnected from global commodity prices.

The spot commodity milk value (CMV) was about $7.30 per kilogram of milk solids - 30 per cent or $2/kg MS below the average Australian southern region farmgate milk price of $9.40/kg MS.

Spot prices of major commodities - including cheese, skim milk powder and whole milk powder - had all dropped in the 12 months to March 2024.

"The most important of these to note is cheese, which has dropped by a massive 29 per cent," Ms Waller said.

"This is important because Australian dairy processors manufacture more than 400,000 tonnes of cheese annually.

"So, cheese - the largest utiliser of Australia's milk - has dropped by US $1800 per tonne, while the cost of production continues to rise."

Farmers have been warned to expect a fall in farmgate milk prices for 2024-25.

Bridgecape Commodities managing director Scott Briggs told the inaugural Dairy Farmers Victoria (DFV) forum, Melbourne on April 17 to expect a base price of $7.75c/kilogram milk solids (kg/MS)," he said.

Saputo sent a letter to supplier on May 1 advising a potential weighted average opening price of $7.80-$8/kg MS.

Dairy imports into Australia are increasing.

Ms Waller said there were impacting the competitiveness of locally produced dairy products.

More than 2 billion litres of milk equivalents entered the market this year, up 17 per cent from the year prior.

"The reality is Australian consumers have accepted imported dairy products, and retailers and food service outlets are interchanging Australian cheese and butter with cheaper imported products at their discretion," Ms Waller said.

At the same time, low milk supply and price competitiveness has caused Australian dairy exports to drop by about 17 per cent or 2.4 billion litres of milk equivalents.