Dairy farmers supplying dairy company Fonterra in Australia have today received a pay rise, coinciding with the company's announcement of its interim financial results.
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Dairy processor Fonterra says the step-up in milk prices is possible because of a sharp rise in commodities.(ABC Rural: Clint Jasper)

Key points:
A key Australian dairy processor is going to increase the price it pays to Australian suppliers
Farmers will get an extra 13 cents per kilogram of milk solids
Fonterra says a sharp rise in commodity prices allowed the step-up

Suppliers will receive an extra 13 cents per kilogram of milk solids for the 2020/21 year, taking the company’s average farmgate milk price to $6.53/kgMS.

The company has also released its interim financial results today, showing a 17 per cent increase in normalised earnings before interest and tax of NZ$684 million ($A736 million).

Fonterra Australia managing director René Dedoncker said the results included a half-year profit of $32 million generated in Australia.

“Our debt is down, we’re back to paying an interim dividend, it’s all healthy so the business is very sound,” Mr Dedoncker said.

“That means it’s a very solid performance, it means our business is clearly making the right choices and it’s very stable and enables us to pay a competitive milk price.”

Overall, Fonterra’s half-yearly profit for the Asia Pacific region was $190 million.

“We’ve demonstrated that we’ve got momentum and the choices that we are making are working and it means we can honour a competitive milk price,” Mr Dedoncker said.

Step-up ‘not aggressive’

Fonterra said the milk price rise of 13c/kgMS announced this morning would be backdated to July 1 and paid to suppliers on April 15.

“(The step up) has been made possible because of the sharp rise in commodities over the last eight weeks,” Mr Dedoncker said.

In recent weeks, many other processors including Bega, Burra Foods and Saputo have lifted their opening milk prices by 10c/kgMS.

Bulla Foods announced a 10c/kgMS step-up in December.

However, Mr Dedoncker said it was important to look at where prices landed, rather than step-ups.

“If you look at all of the prices in the market, we’re in the mix. We don’t think it’s aggressive at all.

“We’ve earnt that in the way we’re trading, and we are sharing that with farmers today.”

However, Mr Dedoncker would not commit to the possibility of further step-ups in the coming months.

“We are just above the top end of the range that we set eight weeks ago and we think, there or thereabouts, that’s what the rest of the year looks like.

“Ultimately, we will continue to review prices every eight weeks.”

Step in the right direction

United Dairyfarmers of Victoria president Paul Mumford said it was imperative processors delivered every cent possible back to farmers in order to remain in the Australian supply chain long-term.

He said today’s announcement by Fonterra would deliver an extra $15,000 over 12 months to a Victorian dairy farmer milking the state average of 280 cows and producing 135,000kg milk solids.

“We’re seeing disappointing milk production data coming out of Victoria for one of the best season we’ve had — we know farmers are selling and getting out of dairying because, frankly, they’re tired,” Mr Mumford said.

“What I’m asking of the processors is that we have to have a buoyant dairy industry and they’re a key player.

“We need the processors as much as the processors need the farmers.”

Mr Mumford said the next challenge processors would face over the coming years was to take some of the risk away from dairy farmers, enabling the industry to grow and be more profitable.

Report reinforces progress across environmental impact, animal care nutrition and food security.

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