Processor Milk Supply Agreements

Milk supply agreements (MSAs) contain terms and conditions of milk supply, including schedules of payments, incentives and deductions that are applied to the characteristics of supplying farms – including location, seasonality, milk volume, milk composition and quality.

Under the Dairy Mandatory Code implemented from 1 January 2020, processors who purchase milk were obliged to publish standard forms of MSAs applicable for the next financial year on their website by 2pm on 1 June. This table summarises the main features of the current MSAs that are offered across Australia in the 2022/23 production season. For more detail, click the links to individual processor websites in the left-hand column of the table below.

See notes below the table for an explanation of contract features.

Company
Pricing structure Differentiation
Region
Non-exclusive deduction
Productivity
Flat milk incentive
Quality penalty
Quality incentive
Minimum composition
Volume charge deduction
Stop charge deduction
A2 differential
Organic differential
New milk/joining
Growth incentive
Multi-year option
Other bonus
Target volume clause
Tenure/commitment
Price comparison adj
ACM $/kgms, flat rates Conventional, Organic, A2 VN
ADFC $/kgms, 2 price bands None V
Bega $/kgms, seasonal and rate options Rates and seasonality VTSQNW
Beston $/kgms None VS
Brownes cpl, solids adjusted None W
Bulla $/kgms None V
Burra Foods $/kgms Rates and seasonality V
Coles $/kgms Regional VTNWS
DFMC $/kgms and cpl, solids adjusted Multiple small regions VNQS
Fonterra $/kgms 2 manufacturing 2 fresh VT
Frestine $/kgms None V
GVC $/kgms None V
KY Valley cpl, solids adjusted Conventional, A2 V
La Casa $/kgms None S
Lactalis $/kgms and cpl, solids adjusted Regions VTSQNW
Mondelez $/kgms None T
Norco cpl, solids adjusted Regions, A2, Organic NQ
Noumi $/kgms No rates VN
Saputo $/kgms Regional VTSN
UDC $/kgms None VS

Key

Dark green boxes refer to contract elements in all regions, the light green refers to elements in some regions only

Regions: V = Victoria, T = Tasmania, S = South Australia, Q = Queensland, N = New South Wales, W = Western Australia

Notes on the above table

Non-exclusive deduction refers to a differential in milk payment rates between exclusive and non-exclusive milk supply. The differential varies between processors.

Productivity payments are generally applied based on a table of rates that rewards larger milk or milk solids supply. The milk payment rates and corresponding range of volumes vary across processors.

Flat milk incentives are applied based on a ratio of peak to non-peak milk supply across a season. The qualifying periods that define “peak” and “non-peak” and the scale of the incentive vary across processors. Flatter supply attracts a higher incentive in all cases.

Quality penalty and incentives vary in treatment across processors, with different approaches from base milk payment rates. There are a range of quality parameters relevant to milk collection that carry a range of treatments should delivered milk quality vary from a base requirement.

Minimum composition adjustments are typically made in cases where milk payment rates (for part or all of base milk pricing) are expressed in a cents-per-litre rate applicable to a standard or reference litre. These adjustments are expressed in variations per kg of milk solids (fat and protein)

Volume charges are a deduction for cartage from farm to dairy factory, usually expressed in cents per litre. Stop charges are applied as a deduction on a flat rate charge per milk collection pick-up.

A2 and organic differentials are premiums paid by several processors. Premium rates vary from case to case.

New milk or joining incentives are paid to welcome new suppliers who swap customer to a processor.

Growth incentives are paid in several cases based on a rate applied to the incremental volumes supplied over prior years. The qualifying prior years varies from case to case.

Multi-year contracts are offered by some processors at differentiated milk payment rates.

Target volume clauses apply in some cases. If a defined target is not met, a lower price is paid.

Tenure or commitment incentives are paid in some cases where producers have been supplying processors for a number of seasons or years

Price comparison adjustments are made in some cases where payment rates applied by another processor in certain times of the season are used as a comparative benchmark.