Free trade or fair trade? Dairy consumers caught in Australia's price vortex

Australia is grappling with surging dairy product prices, sparking a debate among industry stakeholders about the impact of the Dairy Code of Conduct on market competitiveness. Farmers attribute the widening price gap between local and international markets to intense competition and the perceived threat of supply shortages linked to the El Niño weather pattern. Producers have preemptively increased prices in anticipation of reduced supply.

Enacted in 2020, the Dairy Code of Conduct mandates minimum farm gate prices set in June for the upcoming financial year. Despite the El Niño weather phenomenon not causing a reduction in milk production as expected, the code's minimum price mechanism prevents price decreases, leading to a surplus.

Australia's major dairy buyers, Fonterra and Saputo, have had to raise their opening prices multiple times to stay competitive despite the surplus. Importation of dairy products, especially from New Zealand, has increased significantly. However, free trade agreements constrain trade barriers, potentially leading to higher costs for imported dairy products for Australian consumers. The complex interplay between weather patterns, regulatory mechanisms, and international trade agreements adds layers to the challenges faced by the Australian dairy industry.