Yesterday, Murray Goulburn Co-op, which buys and processes our milk announced how much we will be paid from next week. It equates to roughly 33 cents per litre.
In the letter announcing the farm-gate milk price, Murray Goulburn CEO, Gary Helou, writes:
“MG understands that dairy farming profitably at these opening and forecast prices will be very challenging
and we will do everything possible to increase farmgate returns in the short and long term.”
I appreciate Mr Helou’s frankness but, to be honest, it sent shivers up my spine. It reminded me of 2009, when it was clear that no matter how long, hard or smart we worked, we would lose money. In fact, the average dairy farmer took on $220,000 extra debt. This year, it looks like we’ll lose about 3 cents for every litre of milk we supply. Ironically, that could mean we try to produce more milk in an attempt to offset our fixed costs or a lot less milk if we instead decide to sell cows. It will also mean I spend more time trying to earn an off-farm income to reduce the impact on our family.
This is essentially what makes dairy farming a very tricky business: we have one product that we sell to one customer at a price they set. No wonder we’re a resourceful bunch.
11 thoughts on ““MG understands dairy farming profitably…will be very challenging…””
You are indeed a resourceful bunch, but how far can you go when change and innovation often require capital that is not available or simply too risky to invest into.I have just been hearing from friends up here about another two cent drop per litre. I truly admire the dedication and tenacity of dairy farmers, bringing us a beautiful dietary staple which we often take for granted. I am always hoping for that ‘better day’ for you. Lisa.
Thanks Lisa – you make a really important point. The volatility in milk prices and the historically low returns are a big disincentive for investment – whether that’s in technology or people.
Firstly, this decision sucks.
Secondly, is there a futures market for milk or milk products? Seems to me that if there is, either MG should have used it or perhaps even supported suppliers to utlise such a market. Did they hedge against currency movements? Do they provide producers with 2, 3 or 4 year fixed price contract options? Excuse my ignorance but it just seems logical for MG to mitigate some of the risk on behalf of its owners.
It’s very tempting to agree with you, Ian, but I know that MG does employ hedging tactics. They don’t offer fixed price contract options but then I’m not sure that’s the answer either because as Australia’s last big 100% farmer-owned milk co-op, we need it to be financially strong.
Unlike most processors, MG is owned by farmers for farmers and I trust that it has its farmer supplier-shareholders’ interests at heart. It’s the situation rather than the decision that sucks.
And we mustn’t forget history regarding hedging. The other strong farmer owned Australian co-operative, Bonlac Foods no longer exists, largely as a result of hedging when markets did the opposite to what the company experts anticipated. Beware to many eggs in one basket when risk is around!
Over here in UK milk in the super markets there is bottled water (still water) at 81p per litre and milk in the same shop (Tesco’s) at 60p per litre.
It defies logic
Yes, I think there are quite a lot of connections between Tesco’s and one of our two big supermarkets, Fred.
I remembered an article in the local paper here at Ballan about a family at Dunnstown who got tired of being the bottom of the food chain. Resiurceful alternative. Here is a link.
What an inspiring story – thanks for sharing this, David!
A major milk buyer here in the UK has just announced a milk price cut of 1.7p a litre from August 1st, on top of a 2.0p cut in May. This means many producers are now getting less than 25 pence a litre, whilst production costs are widely quoted in excess of 30 pence. There’s no such thing as cheap food – someone, somewhere has to pay and once again it’s the farmers and their cows.
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