Farm costs to push up milk prices

Milk prices are set to rise further as processors try to prevent shortages over the summer by boosting payments to dairy farmers.

Retail price rises of up to 20¢ a litre have been flagged after three major WA milk producers announced a payment increase to farmers to help cover spiralling costs of grain to feed cows.

Australia's largest processor of drinking milk and dairy products, National Foods Limited, warned yesterday that price increases for milk and dairy foods were expected to continue next year.

From January, the processor will pay WA producers an additional 2¢ a litre and will offer incentive payments ranging from 10 to 30¢ a litre for new milk supplies.

The incentive payments are designed to generate more milk over summers, after the processor was forced to import fresh supplies in tankers from South Australia in February to meet local contracts.

National Foods managing director Ashley Waugh said the rising farm gate prices were a combination of higher global dairy commodity prices, driven largely by demand from Asia, followed by higher grain costs and the drought. "We expect these difficult conditions to continue and nothing indicates that next year will be any different," he said.