Milk Prices and Outlook

Tasmanian milk prices continue to be largely dependent on world market conditions. Around 8% of Tasmanian milk production is used as drinking milk. The balance is manufactured into dairy products that have to compete on the Australian and export markets with overseas products.

The chart below shows that the average annual Tasmanian and Victorian milk prices are very similar. Dairy factories within Tasmanian have to compete for suppliers and there are differences between factories in the monthly milk supply pattern, milk quality standards and hence in the milk prices paid to suppliers.

Milk Prices and Outlook

Source: ABARES dairy surveys


Milk Prices and Milk Production

The historical chart of Tasmanian milk prices and milk production shows the link between price and production. The chart shows Tasmanian annual milk production and the average annual milk price calculated from dairy benchmarking. The peaks in milk price coincide closely with peaks in production and conversely milk price falls tend to be followed by a contraction in milk supply.

Tasmanian milk prices estimated through the dairy benchmarking program increased at an average annual rate of 3.5% since 1994. CPI inflation over the same period averaged 2.7% pa. Milk prices are one of very few agricultural commodities to have increased at a faster rate than inflation over this time.

Milk Prices and Milk Production

Source: ABARES dairy surveys


Basis for Payment

Milk prices paid to farmers are determined on the basis of milkfat, protein and volume:
Payment = milk fat ($/kg) + protein ($/kg) - volume charge (c/L)

The payment is calculated on daily production and normally paid by the 15th of the following month. Price schedules vary by month with higher prices during the winter and lower prices in the spring. There are incentives for better quality milk and penalties for poor quality.

Generally there is an opening (base) price schedule established at the start of the season with step-ups paid during the year depending on market conditions.

Some companies have contracts that specify the amount of milk to be supplied each month or in total. The largest company (Fonterra) is encouraging increased production and they pay incentives for total quantity (this favours larger herds).