One of the smaller manufacturers in the Kiwi dairy industry is set to increase its milk prices by 15 cents, following Fonterra's significant milk solids pay out increase to farmers.

From today, Meadow Fresh will increase the price of its milk-based products, including flavoured milk and UHT (ultra-high temperature processing) milk, by 15 cents while cream will have an extra dollar put on its price tag.

Meadow Fresh milk products will increase by 15 cents per litre from tomorrow.

All other existing products remain the same until further notice.

In a letter sent out by Goodman Fielder, the food manufacturer in charge of Meadow Fresh explains how milk prices need to be adjusted accordingly on the back of Fonterra's latest milk solids pay out.

'As a result of the Fonterra announcement, Goodman Fielder is faced with increases in our costs of goods which in turn requires a price increase to the market,” says Goodman Fielder route foodservice sales director Iain Abercrombie.

Last month, Fonterra confirmed $7 per kg of milk solids as the set price for its pilot guaranteed milk price (GMP) scheme. The pilot scheme allows farmers to lock in a milk price for up to 75 per cent of their milk supply – and is $1.20 above the 2012/13 seasonal pay out.

At Countdown, as of last Thursday, Meadow Fresh milk prices range from $1.20 for 300ml and $5.50 for a standard 2L milk – sitting above Anchor and Homebrand at $3.99 and $2.99.

A 300ml of cream is currently $2.30.

Earlier this year, Fonterra chief executive Theo Spierings was reported in the media saying the higher milk price forecast will not translate into higher prices for the consumer.

Theo said higher prices on world commodities markets would not translate into higher milk prices for consumers.

'We are not going to price our products based on highly volatile commodities markets.”

He said higher milk prices would put pressure on the company's profit margins for its branded products.

When questioned about the necessity to increase prices, a Goodman Fielder spokesperson says they do not comment on wholesale pricing as this a commercially confidential matter between themselves and customers.

'However, wholesale pricing is determined by many cost inputs including raw milk, labour, energy and transport costs.

'The raw milk price is based on the published Farmgate Milk Price, this has increased by 27 per cent over the last four months. This is a key determinant to our product cost, which we will be seeking to recover.”

Fonterra Brands managing director Peter McClure cannot comment on whether the increase is linked to the forecast payment, highlighting the forecast forms the basis for the price it sells raw milk to independent processors, including Fonterra Brands and Goodman Fielder.

'The price our business [Fonterra Brands (New Zealand) Limited] pays for milk from the Fonterra Co-operative increased on 1 July, and this will be the same for Goodman Fielder as well.

'It is up to each independent milk processor to manage its wholesale pricing to customers.”

Peter does concede Fonterra is also implementing wholesale milk price increases across several milk products in the coming months, but says the on-shelf price of milk is set by the retailers.

'We have worked hard over the past two years to keep our prices steady despite fluctuating commodity prices and have not made the decision to increase our wholesale prices lightly.

'In the last two years, the costs for labour, storage, distribution, fuel, transport and insurance costs have increased. The sustained pressure on these input costs means that a price increase is now necessary.”