The world’s largest dairy export company, Fonterrra, is the first processor to trial a guaranteed milk price option for farmers.

It works like a forward contract, locking milk into a set price, which for next season in New Zealand is at $7 per kilogram of milk solids.

Farmers will lock in a price for a set quota, and will most likely NOT commit their entire supply to the fixed price contracts. The option is now being trialled in Victoria.

Dairy consultant John Mulvaney says Fonterra is trying to break the dominance of Australia’s largest milk process Murray Goulburn, by offering farmers a simpler pricing system.

“There’s now a challenge there for Murray Goulburn and Saputo being the two remaining ones with what I’d call complex, manipulative payments systems, to think about where they’re heading and whether they have the interests of the industry, long term,” Mr Mulvaney said.