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Murray Goulburn lifts milk price

AAP logoAAP 26/10/2016 Trevor Chappell

Australia's biggest dairy processor, Murray Goulburn, has moved to lift the confidence of farmers by increasing the price it expects to pay for their milk and changing the terms of its controversial support package.

Murray Goulburn now expects to pay $4.95 per kilogram of milk solids for the full 2016/17 financial year - a 25 cent improvement - and fund the increase from debt.

Murray Goulburn cuts its farmgate milk price from $4.88 to $4.70 only a week ago, saying heavy rain in southeast Australia and the loss of some of its dairy farmer suppliers to other processors had affected the co-operative's milk intake.

The farmgate milk price was lifted to $4.88 in mid-September after an improvement in market conditions.

"The short-term solution required to restore confidence amongst our existing farmers, and the industry in general, is first to use the strength we have in our balance sheet to pay this money in FY17," Murray Goulburn interim chief executive David Mallinson told AAP.

Rival dairy processor Fonterra Australia has also lifted its average farmgate milk price for the 2016/17 season, from $4.75 to $5.10, due to strengthening global dairy prices.

Its forecast closing price for the season has also been lifted, from $5.00 to $5.20.

Murray Goulburn's controversial Milk Supply Support Package for dairy farmers, which has tested its suppliers' loyalty, is also being altered again.

Murray Goulburn introduced the MSSP - essentially a loan package for farmers - after it shocked the dairy industry in April with a surprise cut to the farmgate milk price.

The cost of funding the package was to be recovered by docking suppliers' future milk payments for up to three years.

Murray Goulburn last week suspended repayments by dairy farmers for 2016/17, starting from October 1, and has now announced it has extended the recovery period from three to six years, and capped the annual recovery amount.

The changes follow a review of the MSSP by independent expert Grant Samuel and Associates, and come ahead of Murray Goulburn's annual general meeting in Melbourne on Friday.

Mr Mallinson acknowledged the frequent changes in the forecast farmgate milk price, but said that when he took the helm at Murray Goulburn he had undertaken to be transparent.

The changes to the farmgate milk price reflect market conditions, weather, and the company's use of debt to fund an increase, he said.

The increase to the farmgate milk price will cost a total of $50 million, to be funded by debt and offset by cost efficiencies.

Murray Goulburn will also take an impairment of $31.8 million on the MSSP.

Murray Goulburn's listed entity, the MG Unit Trust, was down 0.75 cents at $1.0875 at 1250 AEDT.

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