THE global slump in dairy prices has spilled on to the domestic market.
Dairy giants Fonterra and Murray Goulburn have started a pricing war as they battle to clear stockpiles and undercut each other.
Local dairy processors told The Weekly Times Murray Goulburn had dumped 900 tonnes of pizza cheese on to the local market in the past fortnight.
"They've sold it at a $1.30 a kilogram discount," one processor said.
Murray Goulburn has in turn been undercut by Fonterra.
Another industry source said Fonterra had undercut Murray Goulburn by $500 a tonne on a domestic cheese contract.
Both companies are being forced to stockpile produce as international demand for dairy dries up.
Fonterra Australia spokesman Brad Voss confirmed rumours the company was leasing more warehouse space in Melbourne to stockpile New Zealand produce.
However, Mr Voss failed to explain why the company was storing NZ dairy produce in Australia.
Last month the New Zealand Herald reported property specialists were scrambling to find Fonterra 7ha of warehouse space in Auckland.
At the time, a NZ Fonterra spokesman said the company had a policy of not revealing its inventory.
However, rumours continue that Fonterra has stockpiled more than 600,000 tonnes of its dairy products, rather than offload them at unviable prices.
International dairy prices went into free-fall in October-November, with skim milk powder falling below $US1700 a tonne on the spot market, equivalent to about 24 cents a litre.
Murray Goulburn chairman Ian MacAulay said the co-operative was also stockpiling produce in response to lack of global demand, due to the financial crisis.
"It's a bit above normal, but under control," Mr MacAulay said.
Previously, Murray Goulburn managing director Stephen O'Rourke had told The Weekly Times many international customers simply didn't have the money needed to buy dairy produce.
The crisis has forced Murray Goulburn, Fonterra and other dairy processors to cut farmgate milk prices by 30-40 per cent, starting next week.
However, some Australian dairy farmers have been insulated from the crisis, enjoying the benefits of liquid-milk contracts.
"I feel a little bit safer, but it is still a worry with some of the clauses," Dairy Farmers South Purrumbete supplier Wayne Williams said.
"Our price shouldn't change (too much). We supply the liquid milk market (and) by rights, our price should not go down."
Bega Cheese suppliers have also been insulated from the crisis with their company chairman Barry Irvin saying milk prices would not be cut in February.
He said Bega suppliers were, to some degree, insulated from the global downturn because they sold 80 per cent of their produce on the domestic market.
In contrast, Bega, which also owns 70 per cent of Tatura Milk, has been quick to cut its northern Victorian subsidiary's milk prices.
Mr Irvin said Tatura was more exposed because it exported 80 per cent of its production.
The widening gap between Tatura and Bega farmgate milk prices seems to have been accepted by Tatura suppliers, such as Kialla farmer Trevor Zanders.
"Well, I suppose the two companies are still separate entities in a lot of ways and I assume the Bega company is financially very very sound," Mr Zanders said.
