Why 1 in 5 dairy farmers plans to quit

One in every five dairy farmers is planning to quit. Not just wanting – but actually planning – to quit.

According to research from Dairy Australia’s Situation and Outlook report released today:

“The proportion of farmers making plans to leave the industry has increased steadily since 2014. At that stage, 10% said they were making plans to leave and this has now doubled to 20% in 2018.”
– Dairy Australia, June 2018, Situation & Outlook Report

“Is it good to have a clean out of the bottom 20%?”
That’s a comment I’ve heard from some rather comfortable industry types but the truth is that those planning to leave simply aren’t all bad farmers.

There’s been an 18-year shakeout of Australia’s dairy farmers since deregulation. Even if you’re in the “bottom” 20 per cent now, you’re not doing too badly.

In my short lifetime, I’ve seen farming become a real science.

Jeepers, I’m in a course right now learning about the metabolism of different kinds of lipids and its impact on cow nutrition! Samples of river water are at the lab being analysed for everything from iron levels to coliforms. And I know the reference ranges for potassium, phosphorous and pH in our soils off by heart.

FIGJAM? No, I’m not remarkable. I’m just surviving.

I suspect the “bottom” 20 per cent right now is more accurately described as the most vulnerable 20 per cent. Almost every farmer is at the bottom sometimes. Even the best starting out with big debts; growing and taking on new debts; or hit with drought, divorce or death are vulnerable.

Yep, a lot of them are the future of our industry. We need them.

Besides, as Mary Alexander put it on Twitter this morning, it’s not just going to be those in the toughest positions who leave – it’ll also be those at the top of their game who can.

Why are 20% of Aussie dairy farmers planning to quit?
Well, let’s be frank. This is the third year in a row where more than a third of dairy farmers haven’t made a profit. Nationally, just 55% of farmers are positive
about their own businesses.

Worse still, farmers lack confidence in the future of Australian dairy farming. According to the S&O report:

“Farmer confidence in the dairy industry’s future stands at 47% in 2018 and this represents the third consecutive year of steady decline in sentiment. Over the past four years, confidence has dropped from 75% to 47%.”
– p. 5, Dairy Australia, June 2018, Situation & Outlook Report

Tellingly, farmers are again considering switching processors at rates that would have been inconceivable before 2016.

Everything changes, everything stays the same
The most demoralising thing about our industry today is that despite all the upheaval, dysfunction, noise and pain, very little has changed.

The processors continue to play opening price games, with the biggest of them, Saputo, only declaring what it will pay from July 1 onwards yesterday and number two, Fonterra, still yet to open as I type.

There has been no commitment – not even a timeframe for decision-making – from our peak dairy advocacy body or the government to implement the ACCC’s recommendations.

And farmers are painfully aware that MG’s transgressions earned it little more than a slap on the wrist while Fonterra has escaped any penalty other than the ravaging of its reputation.

Killing the goose that laid the golden egg
We’ve seen how profitable dairy processing can be and the massive investments processors are making in new capacity. But the goose must be fed. And, this time, I don’t think a couple of good milk prices will do the trick.

 

 

 

13 thoughts on “Why 1 in 5 dairy farmers plans to quit

  1. Things to remember the average age of a dairy farmer is 59 , so that means there are a shit load over 65 and a lot have know interest in any one taking over, there are also large farms that can’t sell so what else ca these people do

  2. Not sure about Marys dot point that the industry offers workers great incomes and still can’t attract ppl. Some farms might, lots do not. $50K might sound like a lot of cash to fork out, but for anyone who doesnt get the farm owners perks, like a house, farm ute, fuel etc, $50K doesnt go far, and is hard earned in some fairly ordinary conditions. A more sustainable milk price would hopefully lead to more attractive working conditions, which would in turn help attract good staff. However, it is an open market, prices are driven by huge forces globally. Processors can’t ‘make’ money appear if it isn’t coming in from sales. Hope global prices rise soon.

    • That’s such a good point, Clarabellmoo. Having said that, dairy farming can offer a nice path to asset building for young people rearing their own heifers with the right partners.

  3. Hi Marian, do you think that going independent and developing a branded product offers freedom from some of the current struggles for dairy farmers? I know the inputs and infrastructure required creates massive barriers to entry but still, consumers do seem to be coming back around and valuing quality and traceability.

    • Hi James,
      That’s a really good question. I’ve looked into bottling our own milk on farm and ruled it out for us because:
      1. It’s a six-figure investment that would take many years to break even
      2. It would require the equivalent of another couple of people working on it full time and we just can’t fund that until it breaks even
      3. There’s a lot of competition in this space now.
      I’m not saying it cannot work because others have made it work but the stakes (and risks) are too high for me.

  4. So long as dairy farmers are being treated as badly as franchise workers this industry will continue to decline. Every ones business model is predicated on not sharing the cost equally and fairy across the supply chain they just push them back down through all the different levels of production back onto farm. It starts with the supermarkets and there so called every day low prices and artificially creating loss leaders. But their profits continue to rise. The only way this can be achieved is by screwing the farmers the most vulnerable in the food chain so they can say they are looking after their shoppers and keeping prices low, low ,low . Farmers have had enough of this and this is their response. The whole industry is building its foundation on very weak foundations that have now started to crumble

    • Bernard, you are correct when you say that: “Every ones business model is predicated on not sharing the cost equally and fairy across the supply chain they just push them back down through all the different levels of production back onto farm” [sic]

      What you are describing is the capitalist system we operate in. It is true for all businesses, not just dairy.

      Where you are incorrect is your assertion that supermarkets are the cause of dairy farmers’ woes. It is a common misconception and dealt with by the ACCC in their report:

      “Evidence obtained by the ACCC under our information gathering powers demonstrated that almost all contracts for the supply of private label milk have clauses that allow processors to pass-through movements in farmgate prices to supermarkets. As a result, there is no direct relationship between retail private label milk prices and farmgate prices. For this reason, changes to the retail price of private label milk are unlikely to result in any changes in the farmgate milk price received by farmers”

      Perpetuating the myth that farmgate price is determined by anything other than the export price has been a tactic used by industry figures to gain support for themselves. It has been shown to be false. The sooner dairy farmers understand the economics of their industry the sooner they can expend their energy productively, rather than blaming supermarkets.

  5. I don’t know what the hell is going on here anymore with this industry; it seems to be, to use a colloquial term, stuffed. We have just gone through a crisis that has lost us farmers and our last major processing co-op. All that pain and suffering and what have we now got to show for it? Nothing. The now much hyped milk price index was killed off. Webber Quantitative Consulting apparently where proposing an index, which gave farmers an indicative milk price, based on weighted international dairy commodity prices, less processors’ costs of production.
    What the ADF have now put forward is a pale watered down imitation of the original proposal that does nothing for transparency. What is now proposed will be of little value in the real world. The ADF have also created a retrospective milk price index with an attached market report, well that’s already available via a major rural banks 1/4 industry up date. What farmer participation in all this will achieve is questionable apart from if it fails its not our fault.
    “The index is not a magic bullet, but if done right will importantly provide independent and transparent market information to dairy farmers that is easily accessible and useful in making decisions about their businesses,” ADF president Terry Richardson said. I would have to agree this is no magic bullet but the gun provided buy the ADF is shooting blanks.

    At all levels there is concern about and talk about whether this industry has really got a future. The answer is coming back as no, but the processors don’t seem to be listening. The majority of processors just don’t get it; most seem to be living in their own bubble of reality when it comes to on-farm profitability. They are and have been creating and building their business on very weak foundation and continue to do so. Those foundations are now crumbling and they now need to be strengthened and reinforced if the whole industry is to have any chance of a future. That strengthening was and is the milk price index, the code of conduct and a fairer and simpler milk pricing system.

    The milk price index along with the code of conduct, either mandatory or voluntary, was the cornerstone to better, more transparent and fair milk pricing. Without the milk pricing index in its original form (not the watered down one that now seems the ADF’s preferred outcome as the article suggests) the code of conduct is useless.

    When you sit down and analyse it the pricing index will have a far greater and long lasting effect on open and transparent milk pricing compared to what the mandatory code could ever have or hoped to achieve. If what has been put forward in this article is true then the ADF has let us down because what they are proposing is just window dressing, something that is intended to seem impressive but does not have any real effect.

    The question rightly then is what happened and why. This index is central to the ACCC concerns about sharing the risk between farmers and the processors. It is true it will put the spotlight on processors with regards processing efficiency and that can only be a good for the industry, if it is to stay world competitive and actually grow, to fill all that extra capacity the processors keep building at a cost not just to themselves but to farmers as well.

    It cannot be forgotten that of all the capital tied up in the dairy industry, farmers have invested about 80% of it while the processors have invested 20%. So farmers are already carrying a lot more of the risk than the processors.

    Bottom line is for this industry to get some trust and respect back on all sides. It has to start with these two initiatives. Why do we continually not act or create opportunity for ourselves? We seem to let others take charge and then follow. What we did have was a strategy intended to resolve a difficulty and improve our situation with a fresh approach, but we seem to have now abandoned both of these goals. To what end I ask?

    The ADF role and politics in all this comes across as unacceptable, unsatisfactory or at best conflicted. As the cost of this was a minuscule 2 million dollars, that seems not to be the issue here and my gut tells me there is a whole lot more to this. Time will tell. Something is seriously rotten in the state of Denmark. Time for a full and open explanation to what went on and forget the politics. Who really killed this off, the government or us?

  6. Well written Marian, as ever.

    I wonder the counter balancing intention of dairy farmers. If 20% intend to leave, what percentage intends to grow? How many intend to invest in new production? How many intend to expand their herd? Invest in new technologies? Invest in new miliking capacity?

    • Thanks Mike. It’s all there in the S&O report. The day a farmer says they’re not going to invest in their farm is pretty much the same day as they decide to quit.

  7. Of course farmers are getting older. The general population is. What I don’t understand is the lack of high school and TAFE courses on farming. Teach them, and they may join the industry. When we enrolled our daughter at her secondary school there was one, they kept a few animals in a paddock and we saw them on open day. Then that was gone before she started, in a farming area. None at the local high school either, in a farming area. They even back onto the fields!

    Lots of people moving to the country from the city. Unemployed, but no training locally in farming . They closed our local tafe, but the next closest, at Traralgon has slashed its available courses. How many beauticians do you need in an area? What about farmers in the country? Duh! They are building a better Tafe at Sale, but there’s no public transport to there. How are unemployed people supposed to afford a car?

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