Fonterra’s Judith Swales explains Theo’s thoughts on Aussie dairy farmers

Theo Spierings Fonterra chief executive Theo Spierings. Photo: Pat Scala, Sydney Morning Herald

Fonterra is one of the world’s biggest dairy companies with a glittering history. A cooperative in New Zealand, Fonterra is also Australia’s second-largest processor.

Just last year, Fonterra delivered a stellar Kiwi farmgate price far better than anything ever enjoyed by Aussie dairy farmers. Analysts enjoyed debating why Australia could not emulate its success. Today, the co-op is under intense scrutiny from its shareholders.

As I mentioned in the previous post, farmers in New Zealand are doing it very tough this year and Fonterra Australia chalked up losses last year.

Then, last week, Fonterra’s chief executive Theo Spierings​, was quoted in the Sydney Morning Herald  in a story headlined Aussie farmers being overpaid amid global dairy rout, says Fonterra boss.

After quoting Mr Spierings as saying the current price of $5.60kg MS could not be supported, the Sydney Morning Herald reported:

Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn’t based just on the farm-gate price and matched other processors.

“It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” he said.

“But we need to have the conversation now about what the endgame looks like. What is the value being created – what’s the size of the cake? Then we need to have a good debate with farmers … about how are we going to share – how are we going to cut the cake?

The comments raised a lot of questions for a Fonterra Australia supplier like me, especially in respect to the “Bonlac Agreement”, which extends until 2019 and commits Fonterra to paying its Australian suppliers a price that equals or betters the dominant processor.

I put some of those questions to Fonterra Australia and am grateful to managing director, Judith Swales, for answering them.

Judith Swales, Fonterra Australia managing director. Pic source: Australian Dairy Farmer

MMM: Why has Theo chosen to telegraph a change in Fonterra’s dealings with Australian farmers via the media rather than by opening a conversation with farmers?
JS: Theo was commenting on the global dairy situation and its impacts for Australia. He was putting a voice to issues that many in the industry are well aware of. These are difficult issues and shouldn’t be shied away from, and as an industry we need to address them.

MMM: Are there any inaccuracies in the article you would like to correct?
JS: The headline was unfortunate. The main issue to point out is that the problem is not around Australians dairy farmers being overpaid – as stated in the headline – but rather the impact global volatility is having on the sustainability of current dairy pricing in Australia. What’s important, is that we’re sending the right price signals to our farmers to avoid any surprises and so that they can budget for various scenarios.

MMM: Theo appears to cast doubt on the Bonlac agreement that ensures farmgate prices match or better the dominant competitor. Will Fonterra honour that agreement this year?
JS: We remain fully committed to honouring the Bonlac agreement. We are focussed on giving our farmers line of sight to the price we can pay this year as quickly and accurately as we can. The price we pay this year must be sustainable. We do not want to sacrifice investment in our long term strategy, which aims to deliver returns above the Benchmark price, in response to short term, tactical pricing pressures.

MMM: Does Fonterra remain committed to the Bonlac agreement in the medium to long term?
JS: We view the BSC Milk Supply Agreement as a baseline. We always strive to aspire to more – whether it be with our SupportCrew services, price risk management tools or our suppliers receiving the highest milk price (as found in an independent report by Ian Gibb for the 2013/14 season). We expect our relationship with our suppliers to continue to evolve over time.

MMM: “It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” says Theo. Does this mean special pricing that favours long-term contracts and large farms?
JS: Achieving a mechanism for determining milk price that drives behaviours that support the success of Fonterra’s strategy for all suppliers is our aim. This work is always evolving and we will continue work with BSC on this.

MMM: Farmers who supply milk to Fonterra Australia are suppliers rather than shareholders. What does Theo mean by “sharing the cake”?
JS: We have always said that the best dairy industry model is the one where everyone can get a sustainable return. Farmers need to be able to make money, processors need to make money and so do customers, like retailers. And that’s what he means by sharing the cake.

MMM: Does Fonterra continue to have a long term commitment to Australia?

JS: Absolutely we are committed long term to Australia; and our Board continues to voice this commitment. Australia is one of our four key strategic markets for Fonterra. It is a key plank to our global multi-hub strategy, which complements our Retail and Foodservice business. We continue to invest: we are progressing our Beingmate partnership; we have plans to rebuild our cheese plant in Stanhope; and only this week we commissioned a multi-million dollar Beverages plant in Cobden.

Thank you very much, Judith Swales!


Filed under Dairy Products, Farm, Fonterra

The calm before the perfect storm for one nervous dairy farmer

A perfect storm is brewing. Collapsing global dairy markets, a fodder shortage, and a strengthening El Nino.

Milk price uncertainty

Just across the ditch, NZ dairy farmers are drowning in despair after the dominant Kiwi milk processor, Fonterra, this week cut its farmgate price forecast to $3.85 per kilogram of milk solids, down from $5.25. The announcement followed hot on the heels of yet another set of disastrous Global Dairy Trade auction figures.

The Global Dairy Trade auction results of 4 August

The Global Dairy Trade auction results of 4 August


Most NZ milk is sold via the Global Dairy Trade auction and an article from neatly explains the situation for NZ dairy farmers:

DairyNZ chief executive Tim Mackle said the news was grim, but not unexpected and many farmers would now be in survival mode.

The drop in milk price would result in $2.5 billion dropping out of rural economies, Mackle said. 

“Milk price is now half what it was in 2013/14. We calculate around nine out of 10 farmers will need to take on extra debt to keep going through some major operating losses,” Mackle said. 

“For the average farmer you are looking at covering a business loss of $260,000 to 280,000 this season but for many it will be a lot more than that.”

It would have a big impact on rural servicing businesses. Drops like this had a cascading effect through rural economies, Mackle said.

DairyNZ analysis showed the average farmer now needed a milk price of $5.40 to break even.

Just a few months ago, dairy industry analysts were forecasting a return to better international commodity prices at the end of this year but opinions seem to be changing, suggesting that there will be not one but two years of pain ahead.

What does this mean for Australian dairy farmers like me? Well, the largest processor of Australian milk, Murray Goulburn, forecast a closing (or end of year) price to farmers of $6.05kg of milk solids just before its partial ASX float. It hasn’t yet revised that closing price but its biggest competitor, Fonterra Australia, says it will announce the results of its own July price review this week.

The big difference between NZ dairy and Australian dairy is this: NZ exports 95% of the milk it produces, while Australia exports just 38% of its milk.  The Australian domestic milk market is much more stable than international commodity prices, so we don’t get the dramatic highs and lows of Kiwi farmgate milk prices. At least, that’s how it’s meant to work.

I’m certainly relieved to have locked in a bottom to the price we are paid for 70% of the farm’s milk. We now supply Fonterra Australia, which accepted our bid to join “The Range” risk management program that sees our price bob about between an upper and lower pair of prices. If the milk price does collapse, we’ll go backwards at a rate of knots but will still be farming next year.

El Nino: more feed needed and less to go round

Sadly, I can’t lock in even a portion of our rainfall. With a strengthening El Nino predicted to persist into next year, the Bureau of Meteorology calculates just a 30 to 35 per cent chance of at least average rainfall for our region from August to October. That means we’re likely to have less surplus Spring grass to conserve as hay and silage. It’s a double whammy because the El Nino also suggests we’re likely to need more fodder than normal over summer and autumn.

To top it off, hay prices are already unaffordable and quality hay is scarce.

The perfect storm

In other words, we’ll need more conserved feed than normal with less than usual to make ourselves and, very likely, starved of cash flow to pay for extra loads from far flung places.

A milk maid’s survival plan

So, what do we do? We’ve already begun adapting by selling off our less productive cows to limit our demand for feed. Thankfully, cattle prices are high right now and the sale of those 13 cows will feed the rest of the herd for three weeks. I’m also spending more time hunched in front of the computer looking for any opportunities to cut costs and keeping an eagle eye on our budget.

A brainstorming and planning session with agronomist, Scott Travers, has helped us plan for extra on-farm cropping with brassicas over summer.

Cows grazing forage rape

The cows will be grazing more brassicas this summer

We’ll be planting several types of brassicas (which belong to the same family as broccoli and cabbage) that mature at different times in a bid to have leafy greens available for the cows throughout summer. The big risk, however, is that the weather will be too tough, even for summer crops.

To deal with this, we are planning another infrastructure project inside the bounds of our new kangaroo fence. Water from our freshwater dam will be mixed with effluent from the dairy yard and pumped over the crop paddocks. It will help the brassicas survive a dry sprummer and summer then help re-establish pasture during an unreliable autumn.

This modest irrigation system will cost money but it will slash the cost of spreading the effluent and should pay for itself quite quickly during a year when visits from the hay truck could spell the difference between make or break.

A perfect storm is brewing and, here on the farm, we are trimming our sails to suit.



Filed under Farm, Climate

Kangaroo triumph heralds a new era for the farm

The kids, the Maremmas and The Great Roo Fence

The kids, the Maremmas and The Great Roo Fence

Victory is at last mine! For the past few days since The Roo Fence was extended beyond The End to become The Great Roo Fence, we have seen around 20 kangaroos on the farm each night – down from several hundred.

It’s been a roller-coaster ride, trying to make something out of that part of the farm. When I first took over the reins, I lavished it with care, refencing, installing new water lines and troughs, planting trees, breaking up the subsoil and resowing pastures. The local gossips said it wouldn’t be long before I went bust, spending money like water. And, in part, they were right. We’re still here but the fruits of our labours were simply ravished by the roos every dawn and dusk.

Having been thus chastened by Mother Nature, I decided to bide my time until the kangaroo problem was fixed, redeveloping the less vulnerable half of the farm across the road instead. I chatted with researchers about dingo urine, investigated the efficacy of sonic deterrents, then bought, reared and trained Maremma pups. Got a kangaroo cull licence but couldn’t follow through.

Now, here we are, with 20 roos on the place, a carefully crafted business plan and a much wiser head. It’s a new era for the farm and I can’t wait to get started.


Filed under Farm

Why I’m signing the Farmer’s Letter about climate change

The view from the house after the fire

The view from the house after the fire

Will you help me? Apparently, just before Australia goes to the Paris climate summit, proof is needed that real, live, everyday farmers want the government to do something about climate change.

According to today’s Sydney Morning Herald:

“A cabal of regional and rural Liberal members, centred in Western Australia and supported by a number of conservative MPs, will force a vote at Saturday’s federal council meeting in Melbourne on whether Parliament should “examine the evidence” around climate change before agreeing to any post-2020 emissions cuts.”

“Liberal sources told Fairfax Media that Environment Minister Greg Hunt is likely to be forced to step in and fight off the motion on Saturday by asserting the Abbott government accepts climate change is real and is willing to work with other nations to combat its effects.”

So, to show that farmers who want action are more than a figment of a latte-sipping lefty’s imagination, I’ve signed The Farmers’ Letter, which says simply:

“Aussie farmers are on the front line of rising temperatures and more extreme weather, so global warming is a priority issue for rural, regional and remote Australia. An ambitious target to cut carbon pollution, a transition plan away from coal and gas towards renewable energy, and a strong deal at the UN climate talks in Paris this December are all in the interests of Aussie farmers and our families.”

Dozens of farmers from across the country are joining me and I hope you will too, so that, like the Whos from Whoville, we can prove that we exist.


Perhaps climate change shifts are especially obvious to dairy farmers because these days, everything on a dairy farm is measured to the nth degree. We can tell you how many days it took for the cows to get in calf, how much grass we grew this week and how many litres of milk were made in the last 12 hours.

It’s a fact that less milk is made from listless cows in a heatwave and the cost of a litre of milk skyrockets during drought, fire or flood. And the locals are worried. Just as Alex was about to be born, I joined a meeting of dairy farmers in town to discuss what we could do to adapt to climate change.

I can’t tell you how impressed I was that individual farmers were already doing so much and were so hungry for more information. Four years on and I think it’s all become just another part of the way we farm around here.

But if we are really going to pass the farm on to the kids in a better state than we found it, we’d better make sure we are heard on climate change. Please, if the thought of doing nothing doesn’t sit well with you, visit and show them you’re for real.


Filed under Climate, Farm

The ethics of profiting from animal welfare

Lino Saputo (pic: ABC)

Earlier this week, dairy processing giant Saputo announced it was getting tough on animal welfare. Well, more precisely, it was getting tough on the dairy farmers supplying it milk.

Saputo toughens stance on animal welfare @ABCRural.

The announcement was greeted by farmers on Twitter, both in Saputo’s native Canada and here in Australia where it owns Warrnambool Cheese & Butter, with a degree of skepticism.

The common theme of the discussion was that farmers were already meeting the standards trumpeted by Saputo. The exercise was simply one of a processor profiteering off the backs of dairy farmers, yet again. But it’s worth remembering that Saputo’s move followed a case of a farmer doing the wrong thing as Lino Saputo told the ABC:

Mr Saputo said an incident in Canada motivated the work behind this new policy.

“One of the farms that was supplying us milk had a recorded incident of animal abuse. Here in Canada we are buying milk from the milk marketing board, and typically we don’t know where that milk is coming from,” he said.

“As it turns out, the milk from that farm that had some abuse was being delivered to our plant. “We tried to rally with the dairy industry to have some stronger practices in place, but quite frankly we found ourselves alone in this process and we felt like we needed to take a leadership role.”

Saputo is not on its own. Fonterra has quietly begun animal welfare audits on the farms of its suppliers. Perhaps coincidentally, its own customer, Nestle, threw its considerable global weight around earlier this year, demanding a set of welfare standards from suppliers that has already seen scores of Australian dairy farms whose milk eventually reaches Nestle inspected.

I’d be willing to bet the farm that Saputo, Fonterra and Nestle are the tip of the iceberg. As farmer Shelby Anderson (@cupslinga) tweeted, “it’s society, not a foreign Co” that is demanding transparency and rigour around the way we farmers care for our cows.

The RSPCA is already considering accrediting milk for animal welfare, as it does with eggs. The idea is rejected by peak dairy body, the Australian Dairy Farmers, because it fears the RSPCA marketing will imply most dairy farming is not up to scratch. It’s a fair point that leaves me feeling conflicted because, on the other hand, it’s great to put a value on good animal care (err, beyond having healthy, productive animals and being able to sleep at night).

Just as the quality of Australian milk is taken for granted by Australian shoppers, they expect the cows to be treated well. I for one am pleased that Saputo and Fonterra have been proactive to protect that reputation for kindness.

I only hope that the way we care for animals is marketed with the same sensitivity. A ghastly adversarial marketing campaign might make a quick buck but would leave everyone a loser.


Filed under Animal Health and Welfare, Warrnambool Cheese and Butter

The kangaroos are winning but the Milkmaid is not ready to retreat

Triumphant return from border patrol

Triumphant return from border patrol

Can you see the triumph on the faces of the kids as the Bobcat pulled into the garage on Wednesday night? We’d been on our evening patrol of the new kangaroo fence and hadn’t seen a single kangaroo on the farm at dusk.

We have been pushing back the roos and wallabies in earnest now since Easter, training the mob of 300 or so that ravage our pastures to look elsewhere. It’s been an epic battle. I fill in a spot they’ve dug under the fence with a big log, they find a new path. I fill that in, they flatten themselves out a little more and squeeze in alongside the log.

The roos just extended their underpass after the first blockade

The roos just extended their underpass after the first blockade

More than three kilometres of The Roo Fence separates farm from forest and I’ve spent an average of an hour a day maintaining security.

It was with a warm inner glow of satisfaction that I embraced the chilly air at dusk on Thursday, finding the paddocks gloriously empty of roos and wallabies once more. A single roo hopped along the forest side of The Roo Fence looking for a way in, only to disappear again into the darkness of the forest.

And then, I turned the corner and was presented with a sickening sight. In the front paddock, closest to the road, the roos had discovered The End. The Roo Fence secures the farm on three sides and wraps around a little further onto the fourth, in a convincing show of its impregnable, endless nature. Or not.

Plucking up more courage than I thought possible, the roos had hopped right up to our neighbour’s house and simply turned the corner back into the farm. I counted 50 in one bunch and saw another two mobs equally as impressive, along with a small cluster brazenly grazing right at The End itself. At least 150 in the small front paddock, maybe more.

The light of day revealed a sorry picture. A clear track complete with roo fur on the wires confirmed that no amount of fence tweaking will do the trick. Only a Roo Fence visible from space will stop them now. Fear not, dear Reader, we will prevail!

At The End. See the track under the fence?

At The End. See the track under the fence?


Filed under Environment, Farm

The hardest part of being a dairy farmer

When we saw her lying flat out from a distance, we hoped that she was just in the midst of calving. She was, too, only the calf wasn’t coming out the right way. Instead of seemingly diving out into the big world, toes first and nose second, the calf had his legs crossed underneath him. We must have missed him by moments because, although he did not stir, his tongue was still pink, wide eyes still glossy.

I called for Wayne straight away because I’m simply not strong enough to deal with something like this on my own. I decided to leave her lying down – Wayne was already on his way and I reckoned access to the big milk vein that runs under the cow might be a good idea, just in case.

While we were waiting, something very touching happened. Watch and see for yourself.

As soon as the calf was out, she sat up bright and feisty – tossing her head defiantly at Wayne as he tried to give her a friendly scratch. We chatted happily as we gave her two bags of glucose, calcium and minerals to help her recover. We’d saved her. The kids and I returned with a bucket of water in a rubber tyre and feed, which she gobbled up greedily.

Moments after her labour

Moments after her labour

But that night, she still wasn’t up and wouldn’t get up despite our urgings. We brought the tractor and lifted her to her feet to maximise her circulation and encourage her to take a few steps. She wouldn’t.

Next morning, her ears drooped a little and she seemed to enjoy a scratch. She was eating but refused to drink the water the kids and I had carted from the paddock trough. Now we knew she was in trouble. So-called “downer cows” that go downhill and aren’t up in 48 hours rarely recover. Still, we gave her some more medicine and lifted her again with the tractor but she simply seemed to hang limply from the hip clamp and chest strap.

During the next few visits that day, we could see she had lost the will to live. There was no fight left and even little Alex could see she wasn’t going to make it. We shifted the other cows from the paddock and, while the kids and I rounded up the milkers for the evening milking, Wayne ended her suffering.

This is the ugly side of dairy farming that you don’t see in the ads. It’s the part that farmers hate, too.


Filed under Animal Health and Welfare, Cows