Retail price of milk set to rise in New Year

Fonterra is cranking up milk prices by 9.1c a litre, and 41.4c more for cream. Photo / 123RF

New Zealanders will soon be paying more for their milk after sharp price gains on world commodities markets.

Fonterra - the country's biggest dairy company - said in a letter to customers that pricing across the range of fresh milk, flavoured milk and UHT products would increase by 9.1 cents a litre and fresh cream by 41.4 cents a litre, effective from January 2.

"We try and absorb the fluctuations in dairy commodity prices as far as possible, they've been steadily rising over the last six months, so we're having to make an increase to our wholesale list price in the new year," the co-operative said in a subsequent media statement.

Dairy product prices have been rising sharply over the last few months in response to declining production in the major dairy producers - New Zealand, Australia and the European Union.

The only major player to buck the trend has been the United States, which has seen production edge higher.

Key whole milk powder prices, which slumped to US$1890 a tonne in February have more than doubled since then.

Fonterra last upgraded its farmgate milk price to 75c to 6.00 per kg of milk solids, and some economists expect further increases in the milk price next year.

In a market update, Fonterra said New Zealand milk production for October was down 5 per cent compared to the same month last year.

New Zealand milk supply generally peaks in October and the recent challenging conditions have had a significant impact on peak milk volumes. These lower volumes are expected to flow through the remainder of this season.

Dairy farmers have been in recovery mode over the last few months after suffering two years of below-average prices.