Even though Fonterra has escaped court action by the competition authorities over last year’s milk price cut, it will still be forced to repay farmers this money under its milk supply contract with Bonlac. Bonlac Supply Company acts as an agent for milk supply to Fonterra Australia.
Under its milk supply contract with Bonlac, Fonterra signed up to match or top the farmgate price paid by rival Co-op Murray Goulburn.
Fonterra followed Murray Goulburn with the milk price cut when MG slashed their milk price last year, but was forced to do a u-turn last week as it is facing legal challenges from the Competition and Consumer Commission for cutting milk prices retrospectively. MG has now increased the average milk price it paid to its farmers for the 2015-2016 season to $5.53/kg milk solids (28.31 c/l).
Fonterra cut its milk price to farmers from $5.75 to $5/kg milk solids (29.44 to 25.60c/l) for the 2015-2016 season, but in order to make an average milk price of $5 for the whole season, it reduced its milk price to $1.91/kg (10 c/l) for the last two months.
Under the terms of the Fonterra agreement with Bonlac, Fonterra has no choice but to repay its farmers under a voluntary deal or face a court battle where Melbourne lawyer David Burstyner claims he had more than 200 farmers willing to fund the court case.