National milk processor Lion Dairy and Drinks will revise down its farmgate price for almost 10 per cent of its southern states milk suppliers.
Producers in Victoria, Tasmania and South Australia with variable pricing contracts for the 2015-16 season are the latest victims of the changed pricing market, but only for the month of June.
At this stage a 4.65 cents a litre cut will result in a new annual averaged weighted price paid of $5.92 a kilogram of milk solids.
Lion’s payment remains well above the latest step down prices announced by Murray Goulburn ($5.47) and Fonterra ($5).
The milk industry’s payment cut domino effect began after MG revealed a big hole in its profit forecasts two weeks ago, partly caused by its strong farmgate milk price to farmers in a deteriorating global market.
Lion Dairy and Drinks managing director, Peter West, said Lion’s current financial year revised price continued to reflect a strong price for the 2015-16 season, and only impacted our dairy suppliers who chose variable pricing for all or part of their volume.
“As one of Australia’s leading branded dairy players, this decision was not something we took lightly, however it reflects the current milk supply market,” Mr West said.
“We are committed to building long-term sustainable and mutually beneficial partnerships with our dairy suppliers and as such we offer a variety of choices and a premium when it comes to price.
“Our milk supply contracts have varying lengths from one to five years and multiple pricing options.
“We appreciate this decision will be disappointing to the small number of our farmers who have chosen a variable pricing option for the 2015-16 season, however it should not be unexpected, as this is in line with market movements.”
The specialist cheese and dairy beverages producer and name behind the Dairy Farmers and King Island brands did not adjust the variable rate for May 2016 because it was important to provide farmers additional time to prepare for the anticipated change, Mr West said.
Lion dairy suppliers in the southern states have the choice of: variable pricing underpinned by a minimum pricing guarantee; fixed pricing if they prefer a set and determined price; and also an option to combine fixed and variable pricing.
Under a three year contract, dairy suppliers can elect to fix some of their volume for this period and this is also offered in various combinations - including where up to 50 per cent of the volume is fixed and the rest is variable, or 50pc fixed at a three-year rate and the other half at a one-year fixed rate.
Mr West said by offering a range of price options suppliers were able to manage the effect of fluctuations in a volatile dairy market.
“We think our pricing model offers them a compelling opportunity to select the level of risk and certainty that is right for their business, and allows our suppliers to plan and grow for the future.”
