New development in Australian dairy makes my stomach churn

Ningbo Dairy Group vice-president Harry Wang, left, and owner Yin Chong Zhang inspect farms near Phillip Island. Picture: Aaron Francis, published in The Weekly Times.

This is the blog post I hesitated to write. Yes, we need foreign investment, absolutely yes, but an article about a particular Chinese investor’s plans written by Sue Neales makes my stomach churn.

Ningbo Dairy Group runs 20,000 cows on 30 farms in China. It is buying up Australian dairy farms and plans to fly 100,000 litres of fresh milk to China every day but there are problems, say Ningbo. Sue Neales writes:

“The downside of Australian dairying to the Chinese newcomers is the low milk price paid by Australian processors to farmers, high labour costs, excessive red tape, a slowness to innovate and the lack of good young workers.”

The most disturbing elements of Sue Neales’ story were:

  • Housing thousands of cows indoors
  • Increasing the average cow’s production by 50%
  • Bringing some of Ningbo’s 2000 Chinese employees “…to Aust­ralia to milk cows and help lift farm production levels to Chinese standards”.

I was astonished to read how openly Ningbo will exploit loopholes in our IR system to replace Australia’s “expensive” farm workers with Chinese employees at a fraction of the cost. Will the government act or is this simply the collateral damage of being “open for business”?

“With labour so expensive — three times more than in China — and milk cheaper, it makes profitable farming very hard; we see the only way is to process the milk ourselves, export it to China and to bring some of our workers here.”
- Ningbo Dairy Group vice-president, Harry Wang

We are not used to factory farming in Australian dairying but this takes us a giant leap towards it. The losers will be Australia’s workers, milk drinkers and, most of all, our cows. New Zealand has the Overseas Investment Office to protect its interests from unsavoury investors. Maybe it’s time Australia followed suit.

 

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How to grow Aussie dairy: vertical and horizontal integration

In last week’s post about what it will take to encourage dairy farmers to grow, I promised to follow up with some ideas. The first is a guest post from Ian Macallan, a project strategist and business architect who has operated in the Asia Pacific for over 30 years across a number of industries including dairy.

Whilst 97 per cent of Australian dairy farms are family-owned, there are smatterings of “corporate farming” that bring together large parcels of land and cows.

If left unchecked, this type of pure farm aggregation could swing to the extreme of looking like feudal farming, leaving no capacity for family dairy farming. These corporate farms are also still vulnerable to milk price fluctuations.

Using aggregation as a means to support vertical integration and make it work effectively and efficiently in a balance manner is a very different proposition.
Aggregation must integrate more than land title. It must fully integrate the farming families, provide for supporting farm provisions and services, efficient plant and equipment usage, intellectual property retention, optimal logistics and transport, processor relationships and so on. The list of areas to integrate is long, including appropriate management and governance across the aggregated operations to ensure compliance, risk, cost, initiatives and reporting.

Vertical integration: knitting together the supply chain
Australia is now left with the majority of its processing capacity owned by international operators who need to ensure a regular supply of low-priced raw milk. This type of corporate investment in dairy processing drives cost reduction across all parts of the business and the greatest exposure is the supplier of raw milk, the dairy farmer.

Even existing large co-operatives only partially vertically integrate, starting from the point of collecting and collating raw milk leaving the dairy farmer out of the integration model.

To vertically integrate is more than just plunging large sums of dollars into a factory or storage facility or a distribution centre or port slots or a reprocessing facility in some distant location. No, it requires solid, deep analytics about what chain the business wants to purse and how best to secure that point of the chain so to have its goals aligned with that of the other parts of the supply or value chain.

Horizontal and vertical integration in one package
Combining the horizontal and vertical integration into a “keiretsu” style of structure invests funds into “community” entities that hold farm aggregation as well as process raw milk into value-added product for consumer markets and control or own the distribution channels to get the product to their market.

Essentially the horizontal aggregation is a standalone but dedicated milk supplier to the nearby processor who produces product for downstream distribution channels to the end consumer all under the one ownership structure or with tight cross-ownership. Combined, they reflect a local “keiretsu” style of structure with the same investment community spread across the value chain. This localised keiretsu model can then be replicated in key production regions across the country with the same source of underlying investment.

Keep in mind legal, legislative and market share issues need consideration when using this model as with any business model seeking scale of presence or market dominance.

Triple-bottom-line practice and reporting be included for reasons of ensuring investor drivers do not compromise sustainable farm practice drivers and provide greater appeal to the ethical investment community.

Back to the future with $1.4 billion or more
Reduced to its simplest form, this is merely order of magnitude upscaling of the historical dairy farm where all activities were on farm and locals could buy their dairy products from the farmer at the farm or better still have them delivered. I wonder if anyone remembers getting milk delivered daily to their home in 1-pint-sized clear glass bottles with pressed aluminium tops?

Currently between $1.4bn and $3.6bn worth of opportunity in the Australian marketplace is ripe for this type of approach right now.

Ian can be contacted on macallan@bigpond.net.au 0419 504 255.

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What it will take to encourage dairy farmers to grow

The much lamented stagnant Australian milk pond

The much lamented stagnant Australian milk pond

Consider this entreaty from the charming Lino Saputo Jr, who is the newish owner of Warrnambool Cheese & Butter:

“…what will it take for the dairy farmers to be optimistic about the dairy industry and investing in their farms and what kinds of programs can we put in place that will assist them.”

“What we are trying to do in Australia is appeal to the dairy farmers and say, ‘Look, we can be a good home for your milk. If you choose to increase your herd size and you’re producing more milk, we will put on the infrastructure to process that milk’.”

Lino’s not alone. Many of the processors including our own co-op, MG, would like to see Australian dairy farmers arise from our slumber and produce more, more, more. Why, the industry even commissioned the Horizon 2020 Report last year to work out why we are so sluggish.

But even a simple dairy farmer can sum it up in two words: reliable profitability. See how simple that is? Now look at the chart from the “Productivity in the Australian dairy industry” report released by ABARES this month below:

"Productivity in the Australian Dairy Sector", ABARES, September 2014

“Productivity in the Australian Dairy Sector”, ABARES, September 2014

The volatility is crippling. We spend the bad years feeling desperate and the good years catching up on the bad year before with an eye to battening down the hatches for the next onslaught. When you consider that it takes years of investment to make a dairy farm grow, this is hardly ideal. The extra heifers you rear in the first good year are just as likely to be exported merely to pay feed bills in the next.

Next, match the chart above with the depressing-looking slide below.

DairyTermsTrade

The ABARES report’s authors note that:

“With little control over input prices and output prices, farmers typically rely on productivity growth to maintain profitability—by seeking more efficient ways to combine inputs to produce outputs. In the face of declining terms of trade over the longer term, farms with very low productivity growth may also have falling profits.”

So, we are innovating but with increasingly fewer resources, as government takes the razor to any bodies it suspects to be unduly clever, like the CSIRO and DEPI.

DairyProductivity

But it’s not all doom and gloom because some of the processors are at last coming to grips with the concept factories dependent on milk are, in fact, dependent on farms and have newly-fledged incentives for farmers to grow production.

Over the next few weeks, Milk Maid Marian will be looking at a couple of concepts designed to stimulate growth – and not just a couple of cents a litre if you’re willing to bet the farm!

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How an FTA with China will keep fresh milk on Aussie tables

Please, sir, may we have an FTA4dairy?

Please, sir, may we have an FTA4dairy?

If you live in the big Australian states there’s a real chance the milk on your Weeties has to be trucked across the Nullabor or over the Murray. Why? Because the local dairy farmers just can’t make a living out of supplying milk to you. Nor is there enough infrastructure left to export from those states. It’s a downward spiral that has left WA dependent on South Australian milk.

Here in Victoria, home to two-thirds of Australia’s milk, we have a strong export industry and milk production is steady. There’s a hell of a lot of hype about the rivers of white gold based on China’s thirst but, so far, little of it has flowed back to the farm gate.

The situation is different in New Zealand. They have a flourishing dairy sector that is the envy of Australia. The Kiwi climate – political, economic and pastoral – are almost perfect for dairying, making them our most formidable competitors. And they have a free trade agreement with China that puts them at up to an 18% competitive advantage straight off the bat. Australia’s dairy farming families are not asking for a hand out. All we ask for is a fair go.

My little fellow may not understand why he’s grinning in the middle of a paddock holding a sign but if you want him to grow up helping put milk on your children’s Weeties, please tweet a pic of yourself with #FTA4dairy today. He needs your help to get the deal done.

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On your marks for Spring on the farm

Spring starts tomorrow

Spring starts tomorrow


I’m excited. Fertiliser’s going on, calves are still being born and raised, almost all of the milkers are in and we are joining again with an eye to the next generation. The grass is growing a new leaf every seven days and, before we know it, the silage harvest will start.

This is the make or break time of year when everything has to be done right. Miss cutting a paddock of silage by a week and it could mean buying in expensive fodder later, miss a cow’s readiness to mate and it could cost you $250 in lost milk, miss a problem calving and it might cost a cow’s life.

All our skills are tested in Spring – from biology through to animal behaviour – so we need tools to help us.

We stick “scratchy tickets” on each cow’s back to make it easier to see when she’s ready to mate. Okay, she’s got no chance of winning the lottery but the silver coating of these stickers gets rubbed off when other cows leap onto her back in response to her hormonal cues, revealing hot pink, yellow or orange tell tales underneath.

The results of summertime soil tests and the advice of our agronomist allow us to maximise the performance of our pastures while minimising the impact on the environment.

Knowing when silage involves crawling around the paddocks keeping a close eye on grass growth, then entering the results into a clever little “Rotation Right” spreadsheet devised by our guru friends at DEPI.

But raising calves and watching over expectant cows? That’s a whole lot of tender care, time and generations of farming knowledge (yes, yes, combined with the latest advances in science).

This is when a farmer really knows she’s alive!

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Social media campaign to support a ‘fair go’ China FTA

FTA4Dairy

The Kiwis already have one. We need one too and Aussie dairy farmers are calling on people power to win it next Monday.

A free trade agreement with China is the difference between being truly competitive, or not, in one of the world’s most important markets for Aussie dairy. The peak body for Australian dairy farmers, appropriately named Australian Dairy Farmers (ADF) is leading a social media campaign to get the deal done.

ADF CEO Natalie Collard answered some questions on the campaign.

MMM: What’s planned?

ADF: Through a coordinated social media campaign, ADF is seeking via a trending hashtag to raise public awareness and media focus on the benefits that a positive China-Australia FTA conclusion could achieve for the Australian dairy industry and the overall Australian economy.

This initiative has been embraced by the Australian agriculture community and National Farmers Federation and ramped up under an all-of-agriculture umbrella.

ADF is encouraging consumers and stakeholders to upload a photo of themselves (a.k.a. a “selfie”) holding a sign reading “#FTA4dairy” on social media, and including the campaign’s hashtag in their post as well “#FTA4farmers.”

MMM: Why is the FTA so important to dairy farmers and why should other Australians support it?

ADF: Signing a commercially meaningful FTA with China would allow the dairy industry realise its goals for growth. For a start, a “New Zealand plus” deal, one that is on terms or exceeds those of the deal that China signed with NZ in 2008, would deliver savings of at least $31.5 million, based on current China exports, as well as removing Australia’s competitive disadvantage with NZ.  With the application of NZ terms it would save the dairy industry a cumulative savings total of $630m over the period 2016 – 2025.

It would deliver additional jobs in the farming, dairy processing and manufacturing sectors as well as indirect employment in logistics and shipping.

MMM: Who are you trying to reach with this message and why?

ADF: ADF is trying to reach as many people as possible.  Anyone from the Australian dairy community – whether you are a dairy farmer, industry support group member, political representative, agriculture student, dairy supporter or everyday consumer, you can help! The further the reach, the more viral it will become.  To have a top ranking trending topic on Twitter/social media will raise general awareness of the importance of a positive China FTA as well as generate media interest in our message and campaign.

MMM: I’m sure the ADF will lobby politicians directly – why the social media campaign?

ADF: ADF is seeking to shake up the way usual advocacy is done – we’re pursuing a grassroots approach. We want to put the China FTA on the community’s radar and indirectly pressure the government by showing them the community is watching and listening. ADF stresses that this is a non-politically aggressive campaign, aiming to highlight the positives a good dairy deal could achieve for Australian and Chinese people alike.

MMM: How can people become involved?
It’s easy! Just jump online on Monday, 1st September and tweet/upload positive messages on social media with the hashtag #FTA4dairy.

We encourage you to take a #FTA4dairy ‘selfie’ holding a piece of paper which reads a short message in support of a positive China FTA outcome for dairy and upload this to social media using the #FTA4dairy hashtag.

ADF encourages you to grab a pen and paper, and hand write one of the following messages to feature in your #FTA4dairy selfie – you may also like to be creative and make up your own:
·      I support a dairy deal for our Aussie farmers #FTA4dairy
·        China FTA dairy deal = more Aussie jobs #FTA4dairy
·        China dining boom NEEDS Aussie dairy #FTA4dairy
·        Give Aussie dairy farmers the same chance as NZ #FTA4dairy
·        China FTA dairy deal = less tariffs, more savings #FTA4dairy
·        We need a great dairy deal from China FTA #FTA4dairy

If you don’t have a social media account simply email your ‘selfie’ to ADF: communications@australiandairyfarmers.com.au We’ll post it for you.

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The call of the farm speaks to so many

"Trough activated, Captain!"

“Trough activated, Captain!”

Alex was excited as he pulled on his boots this morning. He had full custodianship of the big Dolphin torch and lit our way through the paddock to open the gates in time for the cows.

With the gates open and the track diverted, Alex checked the operation of the trough, just as the sun’s glow lit the sky.

The Little Man is growing up with the call of the farm in his blood, something that makes him unusual for Australian kids these days, something that’s a real privilege.

He doesn’t realise it yet and I suspect many of the Year 8 students I met today don’t, either. Two DEPI experts and I were part of a panel drawn together to help inspire a new generation to follow their passions and keep learning all the way through life. A lofty aim that’s somewhat daunting, for it took two tragedies to find my way here.

During the questions that followed, one boy illuminated the elephant in the room: “Is it better to get a job you really like even if it pays badly or should you go for one that pays really well?”

For me the answer is clear. While Lynne Strong is undoubtedly correct when she writes that an adequate financial reward is key to seeing more young people return to agriculture, it’s not the only thing. Profits support a passion but rarely do they invoke one.

WinterValleyLoRes

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