Dairy farmers in New Zealand will receive their best-ever milk prices this year, according to the country’s dairy giant Fonterra.

A weaker US dollar combined with strengthening global prices for dairy commodities like butter and skimmed milk powder mean the co-operative’s 12,000 farmer members are expecting NZ$0.553/kg of milk solids.

Adjusted for butterfat at 4.94% and protein at 3.69% – significantly higher than UK milk – and lower yields than UK herds, that equates to a farmgate price of about 15.9p/litre, up from about 12.9p/litre last year.

new zealand

Global perspective

Chairman Henry van der Hayden said Fonterra’s success was based on its global market presence. “We see things globally – that’s our point of differentiation. Europe tends to look only within itself. We’re about maintaining our global perspective.”

One of the world’s largest farmer-controlled businesses, Fonterra has sales of NZ1.3bn (£4.9bn). Despite this, a weak New Zealand dollar in recent years has squeezed farmers’ returns.

“More than 90% of our milk is exported. Through Fonterra, we’re looking to optimise the value of milk and create value for our farmers,” Mr van der Hayden said.
 
Much of the improvement in New Zealand farmers’ fortunes had come on the back of improved prices for Fonterra’s exports of milk powder, butter, cream and casein, which account for 40% of international trade in dairy products.

“We have seen strong demand out of Asia and the Middle East. In the west, there is huge demand fro pro-biotic drinks, and butter has enjoyed a recovery.”

Coupled with this, drought in Australia last year has caused milk production to fall about 10%, he added.

Expansion into Asia

Fonterra has continued to expand into parts of the world it sees as key to future growth like China, netting at 43% stake in one of China’s major dairy companies, San Lu, earlier this year.

“China is a key part of our strategy. There is huge growth in the milk market and they are importing more milk powder to meet demand for dairy products,” said Mr van der Hayden.

“Global demand for dairy products is simply much stronger than supply. In the short term there will be upward pressure on pricing – skimmed milk powder is double what it was last year.”

New Zealand produced about 15bn litres of milk last year, around 1.3bn litres more than the UK. Since Fonterra’s formation in 2001, when the country’s two largest co-operatives merged with the New Zealand Dairy Board, milk output has risen by about 3% year on year.

The co-operative has some 12,000 farmer shareholders, whose holdings reflect the amount of milk they supply – one share equates to 1kg of milk solids. Though a near-monopoly, New Zealand has two other co-operatives and several small milk buyers.

New Zealand and UK herds

   UK  New Zealand
 Avge herd size  95 322 

 Avge yield (litres)

 6815

 3763

 Avge butterfat content

 4.04%

 4.94%

 Average protein content

3.27% 

 3.60%

Source: Milk Development Council