The Australian state has a process for milk producers to know in advance the price they will receive in the near future. And the local and international market makes it difficult for Australian producers to set a market price.
Australia has lost 9% of its milk volume in the last two years, in numbers that means 700 million litres less. This has led to fierce competition between the different processors, especially those like Coles who supply the domestic market, and the multinationals who do business overseas and find themselves in a price-depressed market.
The Australian system obliges the industries to publicly offer minimum prices for the following season from 15 June, and they have until the end of the month to correct this offer according to the competition that is being established, this correction can never be at a lower price, they can only increase the offer.
Two days before the closing of the offers, industries with international business such as Fonterra, Saputo or Bega Cheese have been forced to improve their offers at the risk of running out of milk for the next season.
The main concern is the depressed global market, with demand still not reacting and putting processors on the ropes.
Today Fonterra is offering Australian producers NZ$9.50 per kilo of solid matter, whereas in New Zealand it opened last month with a margin of $7.25 to $8.25 and a mid-point of $8/kg DM.
The reason is very simple, Bega Cheese has opened at $8.80/kgMSM and Canadian dairy giant Saputo $9.05/kgMSM. Both have already improved those offers because they found that Bulla increased its opening price at the farm gate in the range of $9/kg to $9.80/kg.
Saputo does not have it easy either. In this context of milk shortage it had to completely close its Maffra plant, after 100 years, and end bulk powder production in Leongatha at the end of last year. If it wants to stay in Australia, it knows it must guarantee its milk supply, even at the cost of losing profit possibilities.
Today the battle for milk for some processors has become a battle for survival.