Input cost inflation could add pressure to processor returns

Wednesday, 7 July 2021

By Patty Clayton

Over the past year, the market value of milk has steadily increased as dairy markets have remained strong, helping to support farmgate milk prices[1].

Recently however, dairy manufacturers have seen price inflation in most of their key inputs. These include the cost of energy (gas, electric), plastics and labour.

While our estimates show that, on average, 57-60% of the value returned from the market will flow through to the farmgate milk price, other factors which affect the profitability of production can affect the timing and size of milk price changes.

The rising cost of inputs, if not offset by higher product selling prices, will add pressure to processor margins We will look at the impact this has on our market indicators (AMPE and MCVE) over the coming weeks.

[1] For market related farmgate prices.

Image of staff member Patty Clayton

Patty Clayton

Lead Analyst - Dairy

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