A new big Aussie dairy co-op?

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Fonterra Australia’s managing director, René Dedoncker

“It’ll be months, not years,” says Fonterra Australia’s managing director, René Dedoncker when I ask him about plans to form a new big Australian dairy co-op.

Industry veterans will tell you the idea of Fonterra forming an Australian co-op is not new and seemed a real possibility after the demise of that other great milk co-op, Bonlac, in the early 2000s. So, why now?

“I think the time is right,” says René. “This is a value proposition at a time when the industry is fragile.”

“Fonterra Australia is also in a great position to reduce risk. We have learnt from our mistakes and have a stable, repeatable business model with a balanced customer and product mix. Confidence, if not trust, is running high.”

I cough a little nervously and ask René how he expects farmers would rate Fonterra in the trust stakes and whether that might be a problem.

“Trust may well be a stumbling block.” he concedes. “Farmers – even those who’ve been supplying us for many years – tell me it will take years to rebuild. Purely on trust, we could well be ranked quite low but we are working hard to regain that.”

“I can tell you that there is not a key decision made without the input of farmer voices.”

The consultation on the co-op idea will officially begin at the Bonlac Supply Company AGM next week and be discussed at farmer forums across the country.

If it gets a sufficiently warm welcome, the next stage in the process will be discussions about the form the co-op would take.

“We already have several different models in mind,” René says, “but at this stage we want to keep it simple and see whether there’s an appetite for this co-op.”

What Rene can say is that there won’t be a mandatory requirement for farmer suppliers to “share up”, matching share numbers to milk production.

“We need to make it attractive and give everyone an opportunity to participate. Farmers will also be able to supply Fonterra Australia without becoming shareholders,” he explains.

It’s also decided that the shares would be in the Australian operation only, rather than the global Fonterra organisation. The Australian co-op has the blessing of the board of directors but would not need to clear a Kiwi shareholder vote.

The plans towards forming a co-op has “paused” the progress of a replacement for the Bonlac Supply Agreement, René says. While that replacement has already been drafted, it won’t be made public until it’s clear it would suit any new co-op model.

It has done nothing, however, to dampen Fonterra’s Australian expansion plans. The processor has already committed to lifting its processing capacity by another half-a-billion litres over the next six months and will add another half-a-billion within 18 months.

While René stresses that the 3 billion litre target is in capacity rather than milk supply (allowing enough headroom for a bumper season), he says the processor is aiming for a milk supply of 2.6 to 2.7 billion litres within two years.

At the same time, Lino Saputo Jr is on record saying Warrnambool Cheese & Butter will win back the milk MG lost. And, of course, the main beneficiaries were Fonterra and WCB itself.

“What about Saputo?,” I ask.

“We’re running our own race,” says René. “We have incredible confidence in our business and they’re offering powerful competition that’s good for our industry.”

“It might be better to ask Saputo about us.”

Bad moon rising?

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Hear no evil Pic credit: Apartline.de

It’s no secret, the last couple of years on the farm have been bloody tough. The 2015 drought cut deep here, only to be followed by the dairy debacle of 2016. Now the historic agreement to sell Australia’s last big co-op has us in unchartered waters.

We just need a bit of a breather to recover and keep our heads above water.

During the last two years, we’ve closed down spending as much as possible. We haven’t sacrificed feeding cows or looking after our soils but, beyond that, if it could wait, it did.

It means we have some maintenance to catch up on, especially the farm laneways that the cows use to get to and from their paddocks. Maintaining tracks is expensive and we have the equivalent of a very good year’s profit to make up as well as new debts to repay. It hasn’t been a very good year yet.

So, you can imagine how it felt when I heard Freshagenda’s revised forecast for next financial year, which basically said milk prices are headed down again. Not good. Demoralised and, honestly, rather cranky.

But is there really anything to worry about?

After all, a year (or even half of one) is a long time in dairy commodity pricing. Freshagenda notes there are plenty of variables, like exchange rates, the weather in New Zealand and even the Russian ban on dairy products, that can all still make a big difference to the outcome.

This farmer’s left wondering whether it’s safe to let the moths out of the cheque book for that much needed maintenance.

If I spend too much, there might not be enough left in the kitty for another tight year. If I keep the hatches battened down, the tracks will cost a fortune to bring back to square one in another two years’ time.

While all of that is a big deal for me, others argue there’s much more at stake. There’s the psychological impact on farmers for a start.

If social media is any guide, plenty of farmers have had a gutful of industry turmoil and tight times. Some of them will curl up into a little ball, some will grin and bear it, while others will simply walk away.

I’ve heard farmers suggest it’s irresponsible to publish something like that when the industry is on a knife edge. Others worry that the processors will use commentary like this to jawbone the farmgate milk price down.

Either way, they argue, it could help to dampen milk production for another year, reducing Australia’s ability to be an efficient, reliable exporter.

With all this in mind, it’s not surprising Freshagenda has copped a bit of flack. Its founding couple, Jo Bills and Steve Spencer, shouldn’t be surprised. Dairy Australia famously stopped issuing similar forecasts after similar blowback.

Asked for comment by Milk Maid Marian, DA explained its approach this way:

“Dairy Australia exists to provide our farmer stakeholders with the most accurate and up to date information so they can make informed decisions around their business practices.”

“Our role in this space is to provide an unbiased view on current market trends and drivers, through publications like the Situation and Outlook report.

“Milk pricing varies greatly from processor to processor and farm business to farm business. Our approach is to provide the information and insights that farmers can apply to their own context, and draw much more meaningful conclusions than an industry ‘average’ price.

“DA moved away from providing an exact prediction on milk pricing for a number of reasons, these include:

–          The risk of eroding competition for milk and unduly influencing market decisions made by processors.

–          The industry is now in an environment where there is significant variation in processor prices meaning that no price will ever apply to everyone.  This has not always been the case.

–          Milk pricing is extremely complex and there are too many variables for DA to confidently predict a single/universal price.”

It provides all the ingredients for a powerful argument against the proposed $2 million milk price index that seems to have gone very quiet.

On the other hand, Freshagenda is not the only one pointing to a softening in global dairy commodity prices. A quick Googling will reveal analysts from around the world coming to the same conclusion that this cycle is already turning. The processors all know it and can point to any amount of evidence for a lower new season’s price if they want.

Freshagenda has simply put that into context for Australians.

Yes, they’ve also put a number on it, or “numbers” I should say as they’ve actually offered a fairly broad price range that comes with the expected caveats regarding changing conditions.

When the dairy debacle of 2016 unfolded, it caught farmers by surprise. Many asked why they weren’t warned. We can’t have it both ways.

The question is: would you want to know if there’s a bad moon rising? At spreadsheet-time, yes, I would.

 

 

About the loss of MG

“We are stealing from the graves of our founding fathers and the cribs of our children,” were the words of former co-op chairman Ian MacAulay after the vote in favour of MG’s partial float was passed.

History has proven him right and it’s a travesty for our industry.

I’m not going to dwell here on how it feels because I’m sure that, by now, you’ve heard from plenty of others and my story is by no means unique.

All I can offer you is a list of questions for MG to help explain what comes next and the implications of the agreement it’s signed with Saputo. I’ve been assured they will respond but, understandably, it might take a little time.

WorkSafe update

A month ago today, MMM published a guest post from Marnie Williams, Executive Director, Health and Safety at WorkSafe Victoria regarding quad bike safety titled WorkSafe Vic to get tough on quad bikes.

At WorkSafe’s request, the blog post has been updated with changes to one of the paragraphs contributed by Ms Williams.

The paragraph initially read: “This means that if a quad bike is being used in a workplace – and there is a risk of rollover – the employer must fit the bike with an OPD”.

It has been updated with: “This means that if a quad bike is being used in a workplace – and there is a risk of rollover – the employer must consider fitting the bike with an OPD to eliminate or reduce the risk so far is reasonably practicable.”

The most crucial few weeks of the farming year

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I must confess I am one of those farmers rarely content with the weather.

Still, if I am honest, there are just two key events when the weather simply must be delivered as ordered. Right time, right place, right quantity, thank you very much.

There’s autumn, when we hold our breaths listening for rain as delicate new pastures send down roots for a foothold in the soils before the cool sets in.

Then, again, in the few weeks from September to November when, like frenzied squirrels rolling giant balls of sweet silage, we hope to hoard enough feed to carry the cows through the lean summer and winter months.

These 12 weeks are the sweet spot for growing grass – enough sunlight to power photosynthesis but not too much heat to stress it.

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If we’re punished at these critical times, the effects ripple through an entire year. It’s enough to tempt even the most laid-back farmer to sacrifice a few goats to appease the volcano gods.

So here we are, right in the thick of it and tracking well above the average for our farm.

Last Saturday marked a minor turning point. While an iced-coffee powered Wayne carted in newly wrapped silage rolls from the paddock, the kids and I lit our final bonfire on the eve of fire restrictions and set the irrigator spinning for the first time since autumn.

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It’s a fragile, fleeting and uncertain time of plenty.

The storms promising 10mm or more delivered a paltry 1.5mm.

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Does it look more impressive if I tip it sideways?

It’s been a while between drinks now and if we don’t get a big rain, pronto, the annual silage harvest will not provide the buffer we need. The forecasters seem unable to agree on what the next eight days will bring.

Que sera sera. I guess.

The farmers I meet who’ve stood the test of time are generally great philosophers. They don’t scare easily and seem to simply roll with the punches.

I’m coaching myself to do the same but it doesn’t mean forgetting about a back-up plan. I put my hand up months ago to buy some silage before it was even grown. That decision could turn out to be costly if the rains come but, right now, it feels like good insurance.

Don’t call me a “female farmer”

I’m just a farmer. Not an “invisible farmer”, not a “woman in ag”, just a farmer. Being able to prime a pump and drain a sump does not make me exceptional either. Just another farmer.

I’m not sure, really, why there are so many women-in-ag groups. Their existence suggests the female form is somehow a problem when it comes to twisting wire into a figure 8 knot or developing a new plot. It’s not.

All my life, I’ve watched women farmers at work. My grandmother, mother, neighbours and friends. There’s nothing new – or second-rate – about female farmers.

Nor does being capable with my hands make me any less of a woman. I can totter in stillettos and slosh around in Skellerups. Big deal. So do thousands of other farmers.

Yet today is the International Day of Rural Women and, this week, the Melbourne Museum opened a display it says is the first official documentation of women’s contribution to Australian agriculture.

What am I missing? Why do women flock to special female-only groups and why do so few of us turn up to broader industry events?

What do you think? Are female-only ag forums important to make women feel comfortable expressing ourselves or do they simply reinforce a perception that we’re somehow not able to perform in mixed company?

I’m just not sure.