Lion announces price increase

31 May, 2014 02:00 AM
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But 2cL is not going to stimulate any significant growth.

LION Dairy and Drinks suppliers will receive a much needed boost to their farmgate milk price from June this year.

Last week the company notified its supply base it would receive 45 cents a litre in 2014/15, representing an increase of 2c/L over its closing price for the 2013/14 period.

A company spokesperson said the price increase would provide WA suppliers with market certainty and give them the confidence to invest and grow.

But according to WAFarmers dairy section president Phil Depiazzi while farmers had welcomed the increase, it wouldn't be enough to stimulate the production needed to meet demand into the future.

"I certainly think it is welcome and will make a contribution to assist us in managing our costs," Mr Depiazzi said.

"But 2cL is not going to stimulate any significant growth."

Mr Depiazzi said the price rise would likely put pressure on WA's other processors to at least match Lion's price increase.

"And I would hope the other companies go beyond that in an effort to drive an increase in the total production in the WA dairy industry," he said.

Mr Depiazzi said farmers would need to see a farmgate price in the mid-50cL in order to stimulate serious growth in the WA dairy industry and guarantee future sustainability.

The price increase comes as Lion this week announced it will make 42 staff from its Bentley processing plant redundant from July 1.

Lion lost its lucrative supply contract for Woolworths private label milk in WA to Brownes Dairy earlier this year and will cease supplying the contract from July 1 this year.

At the time of the announcement, the company stressed to its suppliers that it would continue to require all contracted milk volume in WA for its growing branded business.

The company acknowledged that Woolworths' decision to discontinue the contract would significantly impact volumes at the plant, amounting to about 24m litres or 30pc less plant volume.

"We have been working through the implications of this with the Bentley team over recent weeks," the spokesperson said.

"While our branded business in WA continues to grow, and Lion remains committed to the WA market, it's necessary to adjust the cost structure of the Bentley plant to ensure its efficiency and long-term viability.

"We are supporting our people through the implications of this difficult but unavoidable change, exploring redeployment opportunities and, where necessary, redundancy payments and appropriate outplacement support."

Lion also confirmed it had imported milk from interstate to top up supply in order to fill the contract, but Woolworths' decision to end the contract meant supply and demand would come back into balance and no more milk would be brought into the State.

Industry has also expressed concern that if WA's major processing companies held firm on their position not to import milk into WA to meet growing demand, there will be a continued worsening shortage of milk supply next year, therefore producers urgently needed to see clear price signals from processors to grow milk supply.

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