What it will take to get this farmer growing

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The last two years – a drought and the infamous dairy debacle – have taken their toll and not just on my hip pocket. Unless there’s change, my cheque book is likely to grow cobwebs for up to a decade. Sounds melodramatic? Not really.

My reasoning is this: first, we need to recover the equity lost over the last two years.

Second, we need to catch up on the maintenance we couldn’t afford to do over the last two years.

Third, I want at least another $100,000 in equity as extra protection. Interest rates won’t always be this low and, when they rise, another shock of this magnitude could be devastating rather than debilitating.

It all adds up to roughly $300,000 in profit to make up before I have an appetite to invest in any project that takes more than a year to break even. And that will take me years and years to accomplish.

If other farmers have the same attitude, we will continue to see Australian milk production stagnate.

The problem with this is that the processors have been investing in hundreds of millions of dollars worth of new stainless steel that requires enough milk flow to make it efficient. Time and time again, they have said growth is the only way to return the maximum price to farmers.

Do we have the start of a vicious circle? I hope not to hear the processors blaming a low farm gate price on inadequate utilisation of bloated stainless steel created by a low farm gate milk price.

Making me even more risk averse is the lack of definitive action to prevent this happening all over again.

Both the big processors, MG and Fonterra, have pledged to be more transparent and that’s a good first shuffle. I say “first shuffle” because to call it a good first step would be overstating its importance. We need a game-changer.

MG has commissioned a price review that will consider farm gate price models from around the world. At the same time, the Bonlac Supply Company, which represents farmers supplying Fonterra, also announced it would present alternatives early this year. Will these be the game changers we need?

I suspect not. The game changer we need is one where risk is shared along the supply chain rather than simply shifted onto farmers.

After all, while the current system is a legacy of an industry dominated by strong co-operatives, it’s also a marvellous “magic pudding” business model for corporate processors.

Consider this recent ACCC submission by Warrnambool Cheese & Butter‘s new owners, Saputo:

In February, Saputo announced a quarterly profit of C$197.4 million. I’m not sure why it feels it is appropriate to make Australian farmers responsible for its inability to negotiate a better energy contract. But it does because it can.

It serves as a timely reminder that the push for farmer prosperity has to come from farmers.

7 thoughts on “What it will take to get this farmer growing

  1. Blimey, where to start on this one…

    I will start at the bottom. WCB (Saputo) should be seeking ways to reduce the cost of their energy supply rather than the just throwing yet another cost problem back down the supply chain to the dairy farmer – THAT has been one of the problems for so long and why there is now the inquiries from Canberra occurring and great angst amongst many dairy farmers.

    If WCB is so completely naive as to take that approach then they deserve to be the recipient of detrimental milk loss where farmers consider alternative buyers of their milk and leave WCB wanting with spare processing capacity and surplus plant staff – then they can go and see how the local community feels about their decision. Have WCB not learnt the consequences of playing that game from watching what has just happened to MGC? Have WCB not been listening to BEGA where their suppliers of milk are treated with greater importance and respect than a low cost product dump truck of the lowest order.

    From the Company Secretary’s comments it appears not and they continue to abuse dairy farmer complacency.

  2. A realistic article! A query: Why does Fonterra purchase milk through the Bonlac Supplier Group? How much money is taken out for the Bonlac Supplier Group? How much are the people on the Bonlac Supplier Board paid, for what?

    • Thanks Alana,
      I have to confess I don’t know about the costs of the BSC but, as I understand it, the BSC is a form of collective bargaining group. Great questions! Will have to find out more.

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