Fonterra to lift milk price

New Zealand dairy co-op Fonterra is expected to raise the price it pays its milk suppliers as lower production due to drought has stemmed supply and lifted global dairy prices from multi-year lows.

When the co-op updates its farmgate price today, analysts expect it will raise its payout to NZ$5 (€3.52) per kg milk solids, up 6% from December’s NZ$4.70 (€3.12), its lowest since 2007.

A lift would provide some relief to Fonterra’s farmer shareholders who collect nearly 90% of the country’s milk production and who have seen incomes slashed after a deep cut in farmgate prices from last year’s record high of NZ$8.40 (€5.58), according to Reuters.

Global dairy prices have risen 26% at Fonterra’s fortnightly auctions so far this year, as Southeast Asian and Middle Eastern buyers trickle back into the market following a 50% plunge in prices last year.

A cut in demand from China stung prices last year amid a global supply glut, but analysts said reduced supply from New Zealand, which dominates global dairy exports, was helping prices.

Most analysts are expecting a rise to NZ$4.80-NZ$4.90 (€3.20 to 3.25).