Most Australian dairy farmers have just one customer for our milk – the processor. It is the processor who adds value to the raw milk, who markets it and, importantly, it is the processor who decides how much the farmer will be paid.
I don’t need to tell you how vulnerable this leaves us.
If the processor makes a mistake or suffers any form of economic headwind – whether it be increased gas prices or decreased whole milk powder prices – it is free to simply pass that problem on to the farmer.
We accept this state of affairs because we feel there is little choice. We can’t store milk on the farm for more than two days and it’s illegal to sell unprocessed milk directly.
Cane growers have a lot in common with dairy farmers
Cane growers are in much the same boat. Like us, they cannot store their produce for long (it needs to be processed within eight hours of being harvested) and can’t sell it directly. But rather than having a handful of processors nearby – as most (though certainly not all) dairy farmers do – many are only in a workable distance from just one miller.
Cane growers use millers as service providers, not just customers
Unlike us, though, Queensland cane growers are determined to row their own boat.
As Queensland Sugar Limited’s Cathy Kelly told Milk Maid Marian, how much Queensland cane growers are paid for their crop is based on the sugar produced from their cane, rather than the cane itself.
“This payment arrangement is detailed in the Cane Supply Agreements growers hold with their local sugar mill, with the miller generally taking one-third of the sugar produced from each grower’s cane as a processing fee, leaving the grower to make the pricing decisions for, and receive payment on, the other two-thirds of the sugar,” Cathy says.
“So, while the growers may not own the sugar produced by their local mill, they are deemed to have an ‘economic interest’ in it. It is this – the Grower’s Economic Interest in sugar (GEI Sugar) – that is at the heart of the recent sugar marketing issue.”
Cane growers can market sugar collectively
While the sugar is processed by private millers, the two-thirds of the refined sugar in which growers have an economic interest isn’t necessarily marketed by the millers.
After numerous government investigations at a state and federal level (sound familiar?), the Queensland Parliament introduced Marketing Choice legislation in December 2015, forcing Queensland sugar millers to provide their growers with a choice of marketer. It’s been a success, despite the best efforts of the biggest miller of Australian sugar cane, Singaporean-based Wilmar, to stymie arrangements as recently as last week.
Growers have access to their own not-for-profit public company, Queensland Sugar Limited (QSL), which is owned by Queensland growers and millers and started life back in 1923 as the Sugar Board, selling sugar from Queensland farmers under a single desk arrangement.
Today QSL, Cathy Kelly explains, provides four major areas of service:
Pricing: QSL is a member of the global raw sugar marketplace, the #ICE 11 exchange, based in New York. QSL uses its membership to conduct pricing on behalf of Queensland growers and millers, covering margin calls and associated fees so that its members can lock in sugar prices up to three years in advance. QSL also operates a sophisticated pooling system, where growers can elect to have QSL manage and price GEI sugar on their behalf.
Financing: QSL uses its access to low-cost finance to provide year-round cash flow to members through a monthly proportional payment system called Advances. Under this system, QSL borrows approximately $150m each year to start paying members as soon as they start delivering sugar to the state’s terminals, even though that sugar may not be sold until up to a year later – hence the term Advance payment. As QSL is a not-for-profit, it also returns any net corporate profits to its members at the end of the financial year via the Advances system.
Marketing: QSL coordinates the physical sale of sugar, aiming to maximise returns to its members by optimising sales timing and customer premiums. They are highly regarded by their long-term clients in the Asian market, who pay strong premiums for Queensland’s reliable, high-quality sugar, last year coordinating the successful receipt of $1.9 billion in customer payments.
Logistics: QSL operates Queensland’s six Bulk Sugar Terminals on a cost-recovery basis, (i.e QSL doesn’t charge a margin), providing safe and efficient storage, handling and shipping of raw sugar as well as overseeing a strong quality management program. QSL’s delivery record is world-class, with over 98% of shipments delivered on time and in full last financial year.
While our circumstances might be a little different and it’s not been without its challenges, the sugar marketing model shows that there are other alternatives to the status quo for dairy.