Fonterra’s Farmgate Milk Price Increase: Good for Farmers, But Likely to Push Up Consumer Prices
Source: DairyNews.today
Fonterra has raised its forecast farmgate milk price for the season by 50 cents per kilogram of milk solids (kgMS), bringing it to $9.50 per kgMS. This increase translates to significant earnings for dairy farmers, but it could also mean higher prices for dairy products in supermarkets.
For farmers, the forecast hike is welcome news. With an average herd producing around 393 kgMS per cow in the 2022/23 season, and the average farm holding around 440 cows, the increase could mean an additional $87,000 for the season. But for consumers, the outlook is less favorable, as higher farmgate prices are likely to be accompanied by rising retail prices for dairy staples like butter and cheese.
Brad Olsen, chief executive and principal economist at Infometrics, explained that although the farmgate milk price doesn’t directly determine supermarket prices, both are influenced by the global market. "The farmgate milk price and retail prices for dairy products are both driven by international demand and pricing,” Olsen noted.
Fonterra’s improved forecast reflects strong global demand for dairy commodities, as seen in recent Global Dairy Trade auctions. "The rising prices for dairy products internationally have reached a point where Fonterra can confidently set a higher farmgate milk price,” Olsen explained. “If Fonterra can command a premium internationally, there’s no incentive to sell domestically at a lower price."
Consequently, domestic prices tend to rise to align with international market trends. "Even though we’re a major dairy-producing nation, prices in New Zealand are often influenced by global prices,” Olsen pointed out. “Farmers won’t accept lower domestic prices when they can earn more in export markets.”
Recent data from Stats NZ supports this trend, with rising prices for dairy products, particularly butter, contributing to grocery inflation. Cheese prices, which have trended downwards for much of the year, could also start to climb in response to global price pressures.
While New Zealanders might hope for relief in local dairy prices, the reality is that domestic costs are likely to remain high as international demand keeps driving up farmgate and retail prices alike. For farmers, Fonterra’s forecast means increased profits, but for consumers, it may soon mean paying more at the grocery store.
Brad Olsen, chief executive and principal economist at Infometrics, explained that although the farmgate milk price doesn’t directly determine supermarket prices, both are influenced by the global market. "The farmgate milk price and retail prices for dairy products are both driven by international demand and pricing,” Olsen noted.
Fonterra’s improved forecast reflects strong global demand for dairy commodities, as seen in recent Global Dairy Trade auctions. "The rising prices for dairy products internationally have reached a point where Fonterra can confidently set a higher farmgate milk price,” Olsen explained. “If Fonterra can command a premium internationally, there’s no incentive to sell domestically at a lower price."
Consequently, domestic prices tend to rise to align with international market trends. "Even though we’re a major dairy-producing nation, prices in New Zealand are often influenced by global prices,” Olsen pointed out. “Farmers won’t accept lower domestic prices when they can earn more in export markets.”
Recent data from Stats NZ supports this trend, with rising prices for dairy products, particularly butter, contributing to grocery inflation. Cheese prices, which have trended downwards for much of the year, could also start to climb in response to global price pressures.
While New Zealanders might hope for relief in local dairy prices, the reality is that domestic costs are likely to remain high as international demand keeps driving up farmgate and retail prices alike. For farmers, Fonterra’s forecast means increased profits, but for consumers, it may soon mean paying more at the grocery store.
