KEY POINTS:
As dairy farmers here hold their breath for another cut in Fonterra's forecast payout this month, in Australia the axe has been swung.
Fonterra will cut its base milk price paid to Australian farmers by 32 per cent between February and June.
Fonterra's managing director in Australia, Bruce
Donnison, said the the move represented a 9 per cent reduction across the full season from the opening price, the ABC reported.
"Unfortunately, we see no immediate respite from the difficult trading conditions, which are dominated by a global credit contraction, major economies in recession and collapsing prices for a range of commodities," Donnison wrote in a letter to farmers.
The ANZ Commodity Price Index for dairy products has fallen by about half since peaking in November 2007, while the average price of whole milk powder in Fonterra's online auction is down 54 per cent since July.
In New Zealand Fonterra is forecasting a payout of $6 a kg of milksolids this season, down from an opening expectation of $7 a kg.
However, chairman Henry van der Heyden last month warned that another cut was increasingly likely.
Fonterra planned to review its New Zealand forecast payout this month and announce any changes after the next board meeting on January 27.
The latest move in Australia comes after a decision by rival dairy company Murray Goulburn last month to slash the base price of milk supplied from February by an average 26 per cent.
Fonterra Australia's suppliers were sent reeling late last month after the dairy co-operative withdrew its November step-up payment of A7c/kg butterfat and A17c/kg protein and warned of more severe cuts to come.
In Australia Fonterra has about 1600 suppliers who supply milk under contract and are based primarily in Victoria and Tasmania.
Fonterra Australia spokesman Brad Voss said conditions of agreements meant prices could changed if required.
"In the last season we had seven step-ups during the season, which was a record number."
The feedback from suppliers had probably been better than Fonterra thought, Voss said.
"We've been watching [Fonterra's online auction] globalDairyTrade and the like and watching the global commodity prices move and I think people are accepting of the fact that, yeah, something had to adjust."
United Dairy Farmers of Victoria president Doug Chant said the price cuts were a huge knock to farmers and those hoping to invest.
- NZPA