Turbulence in dairy’s white rivers of gold

Image from viator (see http://bit.ly/1v5FBtb)

Image from viator (see http://bit.ly/1v5FBtb)


Yesterday left many dairy farmers feeling a little seasick. Fonterra NZ announced a drop in the Kiwi farmgate milk price from $6.00 to $5.30 per kg of milk solids.

The announcement came as rumours of a step-down from Australia’s Murray Goulburn Co-op that had been building for over a month continued to intensify. To its credit, the co-op was quick to send an email out to farmers in the export-exposed southern regions headlining that “MG is maintaining its opening price and full-year forecast at the weighted average available milk price of $6 per kilogram milk solids”. In other words, no step down.

But, and it’s a big but:

“The Board will continue to closely monitor the situation and consideration of any reduction in the base price would be a last resort if markets continue to decline.”

And, in what could only be code for: “Yeah, we’ve been begging you to invest for growth all year but just don’t spend any money from now on, okay?”, the co-op very kindly offered a conservative advisory: “Given ongoing market volatility MG recommends caution in farm budgeting until market directions become clearer”.  In other words, no step down…err…we hope.

The man in the hot seat at Fonterra Australia, national milk supply manager Matt Watt, said the implications of the NZ price revision were still unfolding:

“Right now, the key focus of our September price review is determining what the current market conditions and the latest information we have to hand means for the Australian farmgate milk price. We’ll  provide an update on this as soon as we complete the review.”

I asked  how Fonterra balances the need to offer a competitive farm gate milk price in Australia with pressure from its NZ farmers to “send more money home” in a difficult year.

There’s regularly a difference in NZ and Australian farm gate milk price because of the variances in product mixes,” Matt said.

Historically this has meant that in some years Australian farmers have been paid a higher price than NZ farmers and in others, the reverse has happened. Nothing changes in our commitment to ensure our suppliers are profitable and can grow the whole industry. We know this requires confidence and certainty which is why we’ve taken the steps we did this year – the simplification of our milk price construct, our ramping up of our SupportCrew and the launch of our price risk management tools.

With both processors hedging their bets, who could blame farmers for doing the same?

 

15 thoughts on “Turbulence in dairy’s white rivers of gold

  1. “Collusion”? Now there is an interesting word.

    Collusion of greater powered parties to exert pressure on lesser parties or to ensure dominance in a market they operate in. Supermarkets come to mind but then the dairy farmer might see the dairy processors in the same light.

    Collusion of lesser powered parties to protect and preserve whilst providing for greater presence when dealing with the greater powered parties. Dairy farmers in close proximity getting together under a single regime to negotiate a better deal for supply of to processors or provision of farm supplies.

    Collusion of independents from an alien location all seeking the same thing and although acting individually they collectively are targeting the same thing. Offshore investment comes to mind and not always from the same place or the place you think.

    I guess it depends on where you stand as to whether it is a dirty word, a word to be feared or a word of empowerment.

    • “Like”!
      Whether collusion could ever be considered a word of empowerment is another story. Collusion I would suggest is a dirty word that if you consciously undertook to achieve this the moral impact on yourself would(should?) raise its head. I think many work together little realising that this is perceived by others as collusion.

      Hypothetically if everyone worked together then there would be no barriers and collusion would not exist. Perhaps it boils down to recognising and dealing with the sense of “other” both for ourselves and for our perceptions of “the other”

      #milkasphilosophy 🙂

      • Tim,

        Now that is too philosophical, even for me…

        I do believe that some more of the right “C’s” need to be put back into the dairy sector like Cooperation, Coordination, Cohesion, Collective, Combined and Capital and if to achieve these Collusion amongst dairy farmers is required then so be it.

        We know for sure the processors want more Cows and Collections and one wonders whether they Conspire at times but we also know the Supermarkets like Cohersion, Cash and Competition.

        🙂

  2. It must seen like groundhog day Marian.

    I know it has been discussed many times but I just don’t understand why dairy farmers have to put themselves through this lottery each year.

    Why is it not possible to have a fixed price contract? Just one price, once a year. Or better still, 2 or 3 yearly forward contracts to supply at a set price, to bring some stability to farming enterprises?

    • Yes, Ian, there’s a real sense of “here we go again” that gives our confidence (and with it, willingness to invest in anything necessary for growth) a hell of a battering.

      Fixed price contracts are actually the norm in the northern regions where the processors are focused on the more predictable domestic markets. In the south though, where the value of our milk is affected by exchange rates and international commodity markets, fixed priced contracts are rare.

      Watch this space, though, because the blog is about to feature a few new ideas that might provide farmers with some much needed increased certainty.

    • A flat milk price? I agree. It has all got a bit silly by trying to be too tricky and clever.

      If processors want more milk from farmers, offer them something in return. An improved yield for raw milk or some constancy of pricing they can bank on or better still let them buy the farm and do it themselves, aka the latest Murray Goulburn advertisement. This might be fun to watch and even the cows would get a laugh out of it.

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