Why are milk and butter prices increasing for the consumer, yet the farmer is not getting the extra $1.80?

Milk and butter prices can go up without farmers seeing the full rise because the retail price has to cover the whole supply chain and export markets may affect what processors can pay. So, a higher shelf price doesn’t always mean more money reaches the farm. 

Many factors influence supermarket prices — labour, fuel, supply and demand, inflation and exchange rates. These factors affect dairy, plus there are dairy‑specific factors that determine how much of any retail price increase actually reaches farmers.  

Prices over the past 12 months: 

• Average milk prices rose ~8c per litre. 

• Butter prices rose ~94c/kg. It takes ~20L of milk to make 1kg of butter, that’s ~5c per litre. 

Farmers don’t receive the full increase because dairy has a long supply chain. Even fresh milk requires transport, testing, pasteurisation and packaging while other dairy products involve further processing. When shelf prices rise, costs are absorbed across these stages, meaning only a small portion flows back to the farmer. 

Some years, retail prices rise while farmgate prices (price paid to the farmer) fall, largely due to export dynamics. In 2024/25, 36% of Australia’s milk was exported, meaning global prices heavily influence what processors can pay. High export prices usually give processors more room to lift farmgate prices; low prices can push them down. 

Strong export returns can also increase domestic shelf prices, as processors may shift more product overseas. Retailers then pay more to secure supply, which flows to consumers, but farmers don’t necessarily receive a proportional share. 

Overall, many forces shape retail dairy prices. While the industry aims for strong farmer returns, pricing is complex and not every supermarket increase can flow directly back to farms.  

To support Australian dairy farmers, check the label on the dairy products you’re buying and look for the Australian Grown logo. 

Published March 2026.