The supermarket wrote to farmers through milk processors Fonterra, Lactalis and Bega on Friday to advise them the levy on its own-brand two and three litre fresh milk would be scrapped by the end of June.
The move means Woolworths will stop paying the 10-cent per litre levy to farmers via milk processors from July.
Farmers will continue to receive the 10-cent per litre levy through milk processors until the arrangement ends.
“As drought conditions have eased and farmgate milk prices have increased by around 15 per cent since 2018, we will be phasing out the special drought levy ahead of the new milk year in July,” Woolworths dairy director Jason McQuaid said in the letter.
“From the beginning of the new milk year in July 2022, the farmgate price will continue to be reviewed by processors in line with their usual practices.”
NSW Farmers dairy committee chair Colin Thompson said farmers were disappointed the drought levy was not being rolled into the base price for milk.
“The irrational dollar-a-litre pricing model nearly killed the dairy industry, we cannot let that happen ever again,” he said.
“Fair, market-based pricing that recognises the true cost of production is what dairy farmers need for a sustainable future.”
Woolworths said it had developed a mechanism to be built into processing contracts to allow the supermarket to provide more timely support for farmers through existing milk purchase arrangements.
In mid-2020 the supermarket said the levy had contributed $50 million to dairy farmers since it was introduced in 2018, with another $30 million to flow over 2021.