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Milk processors expecting price rise from Coles

According to a recent report by Food Magazine, milk processors, including Fonterra (ASX: FSF) and Warrnambool Cheese & Butter Factory (ASX: WCB), have recently announced an average increase of 20% in the new season’s milk prices. The price rises have partially been attributed to stronger global demand and the weakening Australian dollar.

According to processors, Coles, owned by diversified conglomerate Wesfarmers (ASX: WES), has previously agreed to “rise and fall” clauses in its private milk contracts. These agreements are meant to provide for the payment of higher farm gate prices to dairy farmers by milk processors when milk prices rise.

Foolish takeaway

Dairy farmers have been doing it tough, so news of a price rise couldn’t come soon enough. For shareholders in companies exposed to both agriculture and food production, a lower Australian dollar is critical to boosting their international competitiveness.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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