FONTERRA Australia has slashed its milk price to farmers and warned more severe cuts are to come.
Fonterra managing director Bruce Donnison sent letters to 1500 of its suppliers last week stating the company had withdrawn its November step-up payment of 7c/kg butterfat and 17c/kg protein.
The letter states: "Since writing to you in early November, we have seen a further deterioration in trading conditions''.
"Commodity prices continue to decline and this has been exacerbated in recent weeks by a rapidly deteriorating financial situation around the world; a deterioration which has far exceeded even our most pessimistic expectations,'' the letter states.
In the letter Mr Donnison warned: "Our forward expectations for the remainder of the season remain below any previous outlook''.
"Consequently we are in the process of reviewing our pricing levels for the February to June 2009 period.''
The announcement follows dairy giant Murray Goulburn's pre-Christmas announcement that it would cut prices to its suppliers by an average of 26 per cent from February 1.
The decision sent shock waves through the dairy industry, given it was the first time since the 1980s that any milk processor had cut prices mid-season.
Other company's are soon expected to follow MG's lead with Warrnambool Cheese & Butter declaring it would make an announcement in January.
This story was first published on WeeklyTimesNow on December 29.
