New Zealand dairy giant Fonterra has cut its farm gate milk price for the current season by 60 cents, to $5kg/MS.
It is also offering suppliers an interest bearing loan, to be repaid from the 2018 financial year.
The company expects this would reduce the cost of goods sold for Fonterra by about $50million.
A Fonterra spokesman said the price change better reflected the reality of the supply and demand imbalance, affecting global dairy commodity prices and compounded by the recent strength of the Australian dollar.
The cut follows a decision by Australia’s biggest dairy company, Murray Goulburn, to cut prices by between 10 and 15 per cent.
Fonterra Australia was also offering its suppliers an interest-bearing support loan of up to 60c per kgMS, linked to a supply commitment and repayable from the 2018 financial year.
The spokesman said Fonterra currently expected that the revised price would reduce the cost of goods sold for Fonterra Australia by around $48million, but this would be subject to a number of factors including final milk volumes for the year.
“This will contribute to the reduction of operating losses in our Australian Ingredients business this financial year,” the spokesman said.
Fonterra’s current earnings guidance range of NZ$0.45 – 0.55 per share reflects a range of possible impacts through to the end of the financial year including the completion of announced business sales in Australia. As a result, Fonterra is maintaining its current guidance range and will continue to take a responsible approach.
