Ahead of today’s forum, if Malcolm Turnbull, Barnaby Joyce and the board of Murray Goulburn would care to look across the Tasman, they would find some very unexpectedly good news — a price rise for Kiwi dairy farmers, whose plight is worse collectively than anything seen in the wake of those price cuts here from Murray Goulburn and Fonterra.
Yes, the same Fonterra that eventually faced up to reality and cut its Australian milk price to its farmer suppliers has boosted its NZ farm gate price by 50 cents NZ to NZ$4.75 a kilo of milk solids. It is the first increase in 11 months and follows the last two global auctions conducted by Fonterra, which resulted in a 28.8% jump in the price of whole milk powder (NZ’s main dairy export). Fonterra has already made a 10 cents a litre advance payment to its farmers in NZ, and with the expected earnings per share of 50 to 60 NZ cents, the gross return to farmers will be around NZ$5.25 to NZ$5.35, just above the suggested break-even point of NZ$5.15 a kilo of milk solids. That will deliver around $NZ1 billion to the Kiwi economy if sustained over the next year. There’s another auction due next Tuesday, and economists say they expect the farm gate price to reach NZ$6 a kilo of milk solids by early 2017. The rest of the price won’t reach Kiwi farmers until October 2017, so the financial pressures remains intense. The same economists caution that after rising in September 2015 milk prices fell sharply, triggering this year’s squeeze. But with global production now falling, the outlook appears more positive this year. So when will Fonterra lift its Australian price from the opening quote (for 2016-17) of A$4.75 per kilo of milk solids? Murray Goulburn retrospectively cut its price to A$4.31. So with rising world prices, shouldn’t both be following the move by Fonterra in NZ?
And, by the way, the problems seem to involve only Fonterra in Australia and Murray Goulburn and their suppliers. Smaller NSW dairy rival Bega Cheese (which Fonterra once had a 9% shareholding in) reported a solid 2015-16 profit and higher dividend yesterday, with chairman Barry Irvin rubbing it in by saying his company was proud it had “maintained its commitments to our dairy farmers while achieving strong revenue and profit growth”.