Milk Shortages Increase Opening Prices to Record Levels

Article by: Hari Yellina

Despite the fact that Bega Cheese announced a record milk solids per kilogramme for their opening average milk price, Rick Gladigau, president of Australian Dairyfarmers, believes it is not enough. Bega Cheese delivered letters to suppliers yesterday, including an offer of $8.40 per kilogramme for the next financial year for all suppliers in Victoria, South East SA, and the Riverina, NSW. For the coming fiscal year, however, they will have to provide Bega exclusively. Bega Cheese has also declared a 10 cent MS step up and price hike for the fiscal year 2021-22. The price increase and step up will be in effect from July 2021 to June 2022.

The move and increase in milk prices, according to Bega executive chair Barry Irvin, indicate healthy global dairy commodity markets. “Bega Cheese’s commitment to providing our suppliers with a competitive milk price,” he stated. “For our Vic, South East SA, and Riverina exclusive suppliers, most of our vendors will receive an opening milk price in the range of $8.20/kgMS to $8.60/kgMS, depending on supplier size and supply profile.” “It was critical that we evaluate the returns in both the Australian and overseas markets, the milk requirements for our greatly expanded portfolio of products, and the competitive realities in each of our regions when determining milk price,” says the company.

Mark McDonald, executive general manager of Bega beverage operations, said the opening milk pricing for 2022-23 reflected the strength of Bega’s bigger and more diversified branded domestic and international dairy business. “Bega is continuing to support its exclusive distributors with record average prices and bonuses for productivity, quality, new milk, and growth, as well as welcoming new suppliers to the Bega family,” he said. Mr Gladigau, on the other hand, believes that $8.40/kgMS is insufficient. “I believe that, given escalating costs, that will not be enough for a lot of people,” he said. “There are certainly those who believe we should be in the $9 range, as they are in NSW right now.”

“Why can’t we get $9 domestic milk across the board if they can get $9 domestic milk in NSW? “It’s all for the same product, and part of it will come down to the fact that we need an increase along the supply chain. “Whether merchants will have to stamp the price up to consumers is debatable, but it must be passed back down the entire chain to ensure that everyone else gets a piece of the pie as well.” Mr Gladigau stated that the price mentioned reflected their concerns about maintaining milk supply in order to keep the product on the shelves.

“Talking to folks in NSW who are dealing with flooding, there are clearly some concerns about how much milk will be available given what those farms are dealing with right now in terms of flooding and animal health issues,” he said. “I believe there will be a decline in supply in NSW, which they will then extract from somewhere else, such as northern Victoria, which is now undersupplied. There will undoubtedly be some processors who are concerned about where the milk will come from, and it is far easier to keep the farmers you now have than to attempt to convince them to switch to dairy farming, which will reflect in the prices.”

Dairy Australia’s industry insights and analysis manager, John Droppert, said the global milk supply was fairly flat. “There’s optimism that there won’t be a large amount of supply on the market to destabilise the existing commodity pricing,” he said. “Shortages of labour, even prior to COVID, competition for land – notably in southwest Victoria and southern Victoria in general – we’ve seen the beef sector, horticulture,” he said. “Because of the fight for land and groundwater, horticulture is booming.” “The industry has seen a lot of exits, especially with asset values being so high.” He predicted that shelf prices will rise as a result of a global inflationary cycle.

Claude Cicchiello, managing director of La Casa Del Formaggio, said the company was in talks with its current milk suppliers. “As demand for fresh cheese products continues to rise, (they are) aggressively seeking extra milk from new suppliers,” he said. In the next four weeks, the company is expected to announce its opening price, while Beston’s Global Food Company general manager Hamish Browning said the company would soon announce its opening milk price.