News & Analysis

Fonterra lifts farmgate milk price

The New Zealand co-operative has increased the farmgate milk price to NZ$6.75kgMS, citing strengthening global demand for dairy products.

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Fonterra Co-operative Group has lifted the farmgate milk price for the third time since March, thanks to an “ongoing rebalancing of supply and demand in global dairy markets.”

New Zealand’s dairy farmers can expect to receive NZ$6.75 per kilogram of milk solids (kgMS) for the 2018 season, 12.5 percent more than the amount Fonterra had forecast in March.

“We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities although following a challenging period of very wet conditions for some of our farmers,” said John Wilson, chairman of Fonterra, the largest exporter of dairy in the world.

The higher farmgate milk price is a significant jump from the NZ$3.90kg/MS New Zealand farmers were receiving during the 2015-2016 season.

According to the OECD and the United Nations’ Food and Agriculture Organization (FAO), low dairy prices during the 2015-16 season as well as adverse weather conditions related to El Niño and poor pasture conditions were among the factors that limited milk production in Oceania. These factors are in addition to the decrease in Chinese demand and Russia’s ban on imports from several countries that began negatively affecting international dairy prices in 2014.

“Although China, the largest importer of milk products, has decreased its imports, mainly WMP [whole milk powder] from the highs of 2013-14, Oceania’s dairy exports are slowly recovering, through higher exports to countries such as Algeria, Indonesia, Mexico, the Russian Federation, Yemen, Bangladesh and Egypt,” according to the OECD-FAO Agricultural Outlook 2017-2026 report.

The two organizations expect global demand for dairy products to continue growing over the next decade, with consumers in developed countries turning to butter and dairy fat instead of vegetable oil substitutes, while changing diets, demographics and increasing incomes will help drive demand in developing countries.