How Farmgate Prices Are Determined
In this short video, we go over how farmgate milk values are determined by processors in Australia.
It provides an overview of the relevant principles across most major milk and dairy processors and milk brokers in determining prices.
Click play to find out more!
Southern manufacturing regions
Southern dairy regions – Victoria, South Australia, Tasmania and Southern NSW, represent approximately 80% of raw milk produced.
Milk prices paid by major dairy product manufacturers in southern Australian regions can be considered as comprising two elements:
- an underlying Commodity Milk Value which is directly influenced by world market prices of dairy commodities (milk powders, cheese and butterfat), and
- a Value-Capture portion or premium which is captured in added-value products and/or due to competition for milk at farmgate with domestically-focused processors.
The history of those two elements over time is shown in the chart on the right.
This portal provides information on the trends in the Commodity Milk Value and dairy commodity prices over time.
Source: Freshagenda, Dairy Australia
Northern and WA regions
Farmgate milk prices in regions of NSW, Queensland and Western Australia, where locally produced milk is predominantly used to service the fresh/drinking milk markets, are consistently higher than Southern Region farmgate milk prices.
Over time, farmgate milk prices in these regions have experienced less volatility than Southern Region milk prices which are closely correlated with CMV fluctuations.
The differential between farmgate milk prices in fresh milk regions and Southern regions has varied over time.