Fonterra said its Australian business had cut its farmgate milk price to A$5.00 per kg of milksolids from A$5.60 following on from key price setter Murray Goulburn's decision to reduce its price, and that the lower price would help reduce its losses across the Tasman.

In a statement to the NZX, Fonterra said the price change better reflects the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar.

The co-operative said that it was sticking with its 45c to 55c earning per share forecast, despite the improvement in its fortunes across the Tasman.

Fonterra Australia is also offering its suppliers an interest-bearing support loan of up to 60c per kgMS that is linked to a supply commitment and is repayable from 2018.


The revised milk price will reduce the cost of goods sold for Fonterra Australia by around A$48 million, but this will be subject to a number of factors including final milk volumes for the year.

"This will contribute to the reduction of operating losses in our Australian Ingredients business this financial year," Fonterra said.

Fonterra's current earnings guidance reflected a range of possible impacts through to the end of the financial year including the completion of announced business sales in Australia.

Murray Goulburn, Australia's biggest dairy company, said last week its farm-gate milk price of A$5.60 per kg of milksolids was no longer achievable. It now expects a price of A$4.75 to A$5/kg to be paid this year.

In February, the company, which listed its units on the ASX last July, forecast its annual net profit would come in at AU$63 million against a prospectus forecast of AU$89 million.

In last week's statement to the ASX, Murray Goulburn said it expected its net profit to fall to A$39 million to A$42 million, triggering the resignation of managing director Gary Helou and chief financial officer Brad Hingle, and a sharp fall in the unit's price.