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!

6 thoughts on “What it will take to encourage dairy farmers to grow

  1. Yep, bang on the money. Sustainability is the key and at present the Australian dairy industry is falling horribly short on one of the key corners, that being sustained profitability. What can we do about it ? We can growl about it, but somehow we are the ones that will need to turn this around, not everyone else.

  2. Sustainability is the key ,if anyone interested have a look at the Australian consolidated milk plan , it seems the closest to the best I have seen

  3. Yes, excellent post Marian. For us in NSW growth the key. To do that we need to identify and access export markets, encourage new investment in manufacturing and build farmers capacity to meet those new markets. We need to ask ourselves harder questions and not accept the industry dogma that we are a ‘fresh milk state’.

  4. Marian,

    Good article and the graphs alone indicate an interesting shift. Remind me again when the dairy industry was deregulated?

    Post deregulation and a decade on there is just over 52% verifiable foreign direct ownership of dairy processing capacity in this country, possibly closer to 65% but harder to prove. ABARES or Dairy Australia could do it maybe but then again being politically correct and factually accurate can be challenging.

    However it is time for the dairy farming community to look to different ways to rally together to support themselves, reduce their exposure to indifference from other parts of the community and market volatilities as well as attempt to turn around the doom and gloom as portrayed in the graphs.

    I look forward to your upcoming articles as I am sure they will hold some wonderful insights for all to feast on and consider at many different levels.

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