What the cold, cold heart of Coles reveals

The man who directs the face and voice of Coles must have become a little overconfident. In a breathtaking display of arrogance, Coles’ general manager of corporate affairs, Robert Hadler, addressed an audience of spin doctors with this presentation: http://www.documentcloud.org/documents/800088-reputation-coles.html#document/p5

Plenty of people have discussed why this presentation was in such bad taste. Callous, even.

But the part that really caught my attention was the role of our co-op, Murray Goulburn, in Hadler’s “case study”. The gloating Hadler describes the deal with Murray Goulburn as “The game changer”.

Hadler’s right about this but not in the way he means, I suspect. The Hadler case study goes to show just one thing: no matter how Coles tried to spin $1 milk, Australians knew it stank and none of their ads, infographics or appearances by Curtis Stone could fix it. Until, finally, Coles actually did something to address the damage caused by the milk war: an unprecedented 10-year deal that was too good for the co-op to refuse.

Now that’s not a case study in spin, Mr Hadler, that’s a case study in people power.

PS: If you would like to keep up the pressure for Coles to do the right thing, add your voice to this petition by Queensland ag teacher, Lisa Claessen, who was compelled act after her students became casualties of the ColesWorths milk war.
 

Devondale’s new TV ads spread the love, but who to?

Well, you saw it here first. MG’s new ads will air on TV from tonight but they’re already up on its Devondale website.

I can’t help but wonder if this ad is a direct consequence of the much-despised Dev and Dale commercials that presented the co-op’s own farmer-shareholders as bogans. The deeply unpopular ads set MG directors’ phones alight and were pulled early in response.

Watching it reminds me of Dairy Australia’s own embryonic Legendairy campaign and even the Dodge “God Made a Farmer” Super Bowl ad that unashamedly pandered to a despairing target audience in desperate need of some moral support.

What do you think? Will this ad sell more Devondale cheese, milk and butter? Is it just too cynical of me to suggest that perhaps I and my fellow dairy farmers are the real targets? Or maybe it’s not me they have in mind but the NSW suppliers MG needs to woo in order to meet its Sydney Coles contract.

While you’re having a think about it, check out another new Devondale product ad!

Legendairy stuff or just fluff?

There’s little doubt Australian dairy farmers are feeling a little demoralised and that’s not good for business. The first symptom displayed by farmers lacking confidence is a stubborn refusal to open their cheque books.

And here we are, hunkered down in survival mode, deaf to our leaders’ calls to invest and grow so that Australia can realise its dream of becoming a vital piece of the Asian food bowl.

With all this in mind, then, take a look at the “farmer-side” launch of the new Dairy Australia campaign, Legendairy.

Ad agency, CumminsRoss is to be congratulated for the stirring execution.

In a media release, DA project leader Isabel MacNeill, says Legendairy is “not just a branding exercise” but a singular rallying point that will help develop pride among dairy people, and increase community appreciation for the industry and demand for its products.

The Legendairy platform will be translated into an initial three-year integrated marketing and communication plan focusing on three core audiences:
• Farmers and farm communities
• Consumers, especially parents of young children
• Societal shapers such as policy makers, authorities and health professionals.

According to MacNeill, it’s all about the dairy community telling its own stories about what makes us legendary.

After sleeping on it, I’m guessing Legendairy will polarise farmers. One camp will say, “Yeah, it’s great to get a pat on the back” and the other camp will say “Don’t spend my levy on expensive ads telling me how great I should feel while I’m struggling to pay the bills”.

I must admit I have a foot in each camp. When you’re going through a rough patch, the last thing you want is a pat on the head and this strays dangerously close to that. I’m really looking forward to seeing what comes next.

EDIT: As I walked away from the computer after writing this post, one BIG thing occurred to me: What does DA want out of the farmer-side campaign and how will it be measured? Fewer exits from the industry, greater farmer investment? Lower depression rates among farmers? Sadly, no, I suspect not because no mere communications strategy could realistically hold such worthy objectives. Not now, in any case. Perhaps it would be better timed to build confidence when the tide has truly begun to turn.

It’s even confused the Chaser team at The Checkout

Last night’s episode of The Checkout tackled the supermarket milk war in all its bewildering glory. They did a pretty good job but I reckon even the very clever Craig Reucassel got a little confused.

The problem with The Checkout’s closing argument is this: while processors don’t pay farmers more for each litre of branded milk they sell, they do pay farmers less when there is less money to go around (as Craig mentioned). So, when the processors sell less branded milk at lower margins because of the stiff competition from homebrand milk, they have to cut their costs.

Now, if you were a multinational processor, would it be easier to protect your profits by negotiating a better deal with the duopoly or simply tell dairy farmers that the price of milk had fallen? You guessed right, and they did, with disastrous consequences for farmers in NSW, Queensland and Western Australia in particular.

In other words, if you are among the one in four Aussies who buys branded milk, good on you! Until Murray Goulburn and Norco get their new efficient and 100% farmer-owned factories operating in Sydney and Brisbane, the $1 supermarket milk war will continue to hurt farmers in those states. Sadly, there seems to be no light at the end of the tunnel for farmers in WA and the milk supply there is so small now that it’s being trucked across the Nullabor to keep Perth going. There is a real possibility that UHT will become the new norm there, as it is in many parts of Europe.

The second area of confusion for The Checkout comes in its update about the MG deal with Coles. Here’s an extract:

“Coles is currently run by a coterie of former Tesco employees so it is perhaps unsurprising that this latest step mimics the approach in the UK. British supermarkets have moved to contract with farmers and cut the margin the processors make. This has led to higher farm gate prices for the farmers contracting with Tesco – but also more expensive requirements for them. Similarly, a lot of additional costs are expected for Australian farmers collectives, with Murray Goulburn spending $120 million on milk processing plants.”

The additional costs that come with Tesco deals are not in processing plants. It’s in on-farm compliance costs as Tesco dictates some aspects of how the small number of contracted farms are run.

In our case, the Coles deal is with the farmer-owned processor, Murray Goulburn, and nobody is talking about Coles making demands about the colour I paint my dairy door or how I raise my calves. Why is it different? A handful of (relatively powerless) farmers supply Tesco direct (and Woolies under its new Farmers Own scheme) whereas Coles is picking on someone closer to its own size in Murray Goulburn, which boasts annual revenues of $2.29 billion.

Co-operatives have never looked so vital to the survival of Australian farmers and the ability of Australians to take fresh food for granted.

Coles has forged this deal with MG because, contrary to Craig’s opinion, Australians aren’t stupid. They know $1 milk is not sustainable and they’ve started voting with their wallets: yes, the share of homebrand milk is falling.

This is a huge win for the little people of Australia – dairy farmers and milk drinkers alike. We truly are what we eat.

Co-op does fresh milk deal with Coles

Murray Goulburn, the co-op that processes our milk, sent out an email this morning that will have a huge impact on dairy farming: it will supply Coles fresh milk for the homebrand and our own Devondale milk. Here’s an excerpt from MG’s press release:

“• Devondale announces 10-year private label daily milk partnership with Coles
• The Co-operative will also relaunch Devondale branded daily pasteurised milk
• Devondale cheese will return to Coles’ shelves
• Deal will deliver additional profits to Devondale dairy farmers
Devondale (Murray Goulburn Co-operative Co. Limited), the Australian farmer Co-operative, today announced a landmark, ten-year partnership to supply Coles with daily pasteurised milk for its private label brands in Victoria and NSW from July 2014.

Separately, the Co-operative will also relaunch Devondale-branded daily pasteurised milk, through an initially exclusive agreement with Coles, and Devondale cheese will return to Coles’ shelves.
The milk price paid by Coles under this unique agreement locks in a premium that will deliver additional profits to Devondale dairy farmers over the life of the contract. The premium is not affected by price fluctuations in international dairy markets or movements in the Australian currency and the contract
contains rise and fall provisions to protect the premium farmers receive.
As a Co-operative, Devondale will return 100% of the profits from this agreement to its farmer-shareholders through higher farm-gate returns.

Devondale Managing Director, Gary Helou, commented, “The daily pasteurised milk segment is currently mainly supplied by foreign owned companies that repatriate their profits to overseas shareholders. The entry of Australia’s farmer owned Co-operative into this market segment cuts out the middle man and delivers profits directly to farmers.

“This is a logical growth opportunity that extends Devondale’s domestic presence in consumer markets and is expected to lock in returns that will be paid to farmers through higher farm-gate prices. These higher prices will benefit all dairy farmers.”

It goes on to say that:

“We appreciate that there has been considerable public concern about the pricing policy for private label milk. Under the contract agreed with Coles the retail shelf price for milk does not determine the profits that will be received by MG supplier-shareholders.”

“MG expects to receive returns that represent a premium over and above the price available in other markets such as commodity dairy ingredients. The contract is expected to lock in this premium for ten years, regardless of what is happening in international dairy markets or movements in the Australian currency. All profits on this contract will be returned to all supplier-shareholders through improved farmgate returns. This new revenue stream will also reduce volatility by providing an additional domestic earnings stream as a balance to fluctuating export earnings.

“As part of this expansion MG will be taking on new supplier-shareholders across existing and new supply zones to meet the growing demand on our milk supply. This includes growing a local milk supply in the Sydney region. The Sydney milk pricing arrangements are yet to be finalised but importantly, the arrangement provides sufficient flexibility for MG to offer a fair farm-gate price which will be supported by Coles. In other words it is expected that all profits from this project will be returned to our total supplier-shareholder base.”

Will have more on this for you later today.

Am I in a dairy crisis?

A group of young Gippsland dairy farmers say times are tough but not at crisis point, said well-known dairy consultant John Mulvany during an ABC Radio interview yesterday.

When I ask myself whether it feels like I am in a “dairy crisis”, the answer is a perplexing “yes and no”.

We will get through this year battle-weary but pretty much unscathed and the bank is still very supportive. The co-op recently delivered us a modest price increase, which included back-pay and that was very helpful. I hope I’m not jinxing myself by saying this but the autumn break has arrived, everything is green and growing and new seed is in the ground.

But when I look at why things are undoubtedly “tough”, that’s when it feels like a crisis.

International dairy commodity prices are good
Right now, we are actually being paid very well. It just doesn’t feel like it for two reasons. First, those excellent prices are in US dollars, which means that by the time you convert those prices into Aussie dollars, the prices are a lot less spectacular. Second, the cost of making milk has increased faster than milk prices have risen.

Given that international dairy commodity prices are notoriously volatile, I’m not looking forward to the next cycle, when they are considered “weak”.

The strong Aussie dollar is not going away anytime soon
Business commentators are telling Australian exporters (and around half of our milk is exported) to get used to a strong Aussie dollar. It’s here to stay.

Input costs are tipped to keep rising
The price of power, refrigerants and fuel is only going to keep rising, along with wages and, in the long term, fertiliser. Interest rates cannot be expected to remain so low forever, either.

Smart farming programs withering as R&D slashed
There have been savage cuts to agricultural R&D right around the country, with massive job losses here in Victoria. We are going to have to look further afield for innovation leadership.

Conflicting messages about the future of farm-gate prices
We are constantly told a massive protein shortage will transform dairy farmers from paupers to princes. As dairy industry commentator, Steve Spencer, writes in the latest edition of the Farm Policy Journal:

“One of the significant challenges faced by the industry – especially export manufacturers who can’t keep up with customer demand – is that too few of their milk suppliers have bought into the story that the future holds great opportunity.”

Glad you noticed, Steve. And little wonder we’re not buying the story. Not only are we no more profitable now than we were a decade ago when “the story” was first floated, just a few weeks ago, ABARES forecasted a 36 cents per litre farm-gate price within five years – well below our cost of production.

Steve goes on to say that the dairy industry is missing many key ingredients “…building confidence, showcasing success, positive esteem…” and then poses a “…critical question for all parts of the industry: how to motivate people to look long, adjusting their businesses and attitudes to accept the cycles of the market and cashflow as inevitable?”.

Steve, I think that is what we have done and that is why some call it a dairy crisis. Rhetoric no longer cuts it. But I reckon you’re right that we farmers do need to start thinking about the big picture beyond the farm gate so we are ready not only to face the future but to recast it before it’s too late to find our feet in the new world order of dairying nations.

The brains behind “The truth about the supermarket war”

Vet student, Cassandra MacDonald, launched her single-handed David vs Goliath battle against supermarket giant Coles yesterday and, already, her clever YouTube video “The TRUTH about the supermarket war” looks like going viral.

So, who is this talented young woman? Milk Maid Marian asked Cassandra a few questions to find out more.

MMM: Tell us about yourself – do you have a dairying connection?

I am a fifth year veterinary science student studying at Charles Sturt University in Wagga Wagga. I am not from a farm, I was brought up in the suburban South Coast of NSW for the first ten years of my life. My connection to the dairy industry started through showing dairy cattle at high school. Through the opportunities I have been given and the people I have met/connections I have made through this initial start in the dairy industry, I have been able to get where I am today, studying veterinary science, showing and breeding dairy cattle, milking on dairies, scholarships I have won, trips overseas that I have won. All because someone saw my interest as an eleven year old, who had fell in love with dairy cattle. I feel I owe it to the industry to promote it and share with others how great the industry is.

MMM: What made you decide to create your infographic?

I saw the Coles video, after seeing an article about it on FarmOnline and felt angry about the misrepresentations that presented in their video. I couldn’t believe or understand the way they tried to represent the different points just to spin them to their advantage and fool consumers into believing them. And believe they will! I wanted to reply and vent my anger. So I thought almost immediately- hey I can draw, why not use that talent and copy them and throw it straight back in their faces? Especially when they have obviously spent a lot of money and effort on it, and me being an absolute amateur, I wanted to make fun of their efforts and make it seem trivial in a way I guess.

MMM: How did you do it? How long have you been working on it?

I started by doing drawings and then realised I needed a plan, a path to follow so I scrapped that idea and started again by writing what I thought I would narrate over the top of the video. I wanted it to address the same issues as brought up in the Coles video but represent them properly and wholly. I wrote it off the cuff, after having written a letter to The Land for their editorial (after finding out it was way too long for what they wanted) which was researched using ABARE data and data and information from Dairy Australia as well as a few of my farmer contacts who are extremely experienced in the matter – I am always either text messaging or conversing with them either over the phone or in person about these issues.

I then went through the text I had written and wrote down a list of what I could draw to represent the points I was trying to make. It took me a couple of hours over two afternoons to make the drawings- of which I filmed on the floor with my iPad- and everything you see in the video is the first and only draft- there were no mistakes, no reshooting, or several tried at any of the pictures- they’re all the ones I drew off the cuff as I consulted my list I made. I think I made about 52 clips altogether.

I then had to work out how to record my voice (easy once I found the voice recorder on my computer), and then, compile and edit the clips to make the video. This is where I ran into a dead end. I didn’t think it was going to make it passed this. I had several ‘movie maker’ programs on my computer, didn’t know how to use any of them, and none of them did what I wanted them to do.

Two nights ago I finally found a program on the internet, downloaded it and spent the next 16 hours working on getting the clips to match the audio – which was not easy – especially when my ancient computer couldn’t deal with the needs of the program and wouldn’t let me preview anything before committing to making it a movie. And each time you commit, it took about one hour for it to process it, so after ‘making’ the movie 7 times, it was finally close enough to what I wanted and I was ready to post it! I even went as far as to looking up what the best time to post on Facebook was, and luckily my research told me the time I had planned.

MMM: How do you hope Coles, shoppers and dairy farmers will respond?

I hope it makes Coles realise that there are people out there ready to fight back against their sneaky spin. They will have to think harder to try and justify their moves, because if they lie or warp the truth again, I will be more than happy to come back at them again. Also, as I say in the video, I want them to stop denying that they are not having an effect on the price some farmers are getting for their milk, and on the industry as a whole. Because even if they are not having a direct effect, their effect is certainly indirect with the decreased sale in branded products and thus decrease in income and profits of the processing companies who ultimately need to pay the farmer.

I hope consumers will stop and think about what exactly is happening. I hope they think about the choices they make, and how it affects others. Ultimately it would be great to see more people boycotting generic brand milks and buying branded milk products, I think this is the only way we can combat the issue, as Coles is not going to budge anytime soon (unless they get done in the current investigation by the ACCC). I also want them to think about the information they are being fed, especially by such big powerful companies – not to believe everything they are fed!

For dairy farmers, I would like to see them agree with me as I hope I have done the right thing and represented them in a way that is honest and accurate. I want their approval basically. After their approval I would love them to all share the video around to everyone they know – why because it will get to more and more people, and most of them won’t be form a dairy background. And most of them do buy milk, and most likely buy it from a supermarket. Then we are educating our consumers for our ultimate benefit, for their support and hope that they will make conscious decisions at the supermarket and not just go for the cheapest alternative.

MMM: What has been the response so far?

So far the response has been somewhat unbelievable. It is what I wanted though. I want this to reach as many people as it can. One of my biggest passions is educating people about agriculture, especially about the dairy industry. At present I have had over 50 of my friends share the video on Facebook with who knows how many friends (and who knows how that keeps going), I have had numerous people share it on other pages on Facebook, and before I knew it, it had hit Twitter – I wasn’t even a part of Twitter (but I am now!). On YouTube itself, I have had 2788 views in not even 24 hours. The support has been fantastic as I was somewhat nervous, but the commendations have been all positive and really amazing!

The smoking gun: the numbers reveal Coles’ dairy damage

Please, just read this article by dairy analysts, xCheque, on the damage caused by the supermarket war. Some excerpts for you:

“The supermarket’s pricing strategy has squeezed the processors to near death and they have responded in the only way they can – attack their single largest cost of production – the milk price. In turn, the dairy farmers of northeast Australia have turned off the tap.”

“It is undeniable that Central & Northern NSW and Queensland milk production has dropped dramatically in the past two years.

“It is also undeniable that the southern exporting states are seeing no such effect – this is despite seeing a downturn in the global dairy industry over the last year.

“It is also undeniable that we haven’t seen a production drop like this since the period after dairy deregulation more than a decade ago.”

“Stop and think what you are doing Colesworths. You have taken a very blunt axe to the Australian dairy supply chain. In our view you are definitely in denial if you think that you and your shareholders have no responsibility for the long term social health and economic wealth of Australian agriculture.

“Editor’s note: Apart from the confirmation in milk production data, not much is new in this debate. Our subeditor (and all of us) were however particularly incensed at the most recent example of ignorance and insensitivity by Wesfarmer’s boss Richard Goyder. Clearly denial of responsibility goes right to the top of that organisation and there are no remaining traces of empathy with the company origins.”

The totem of $1 milk

Two years ago today, Coles offered up milk as a sacrifice in the name of market share. It’s now become totemic in Victoria.

The reality is that about two-thirds of Australia’s milk comes from Victoria’s cows but not a lot of my farm’s milk ends up in the supermarket fridge.

We supply the Murray Goulburn Co-op, which processes about one-third of Australia’s milk and has the technology to make a huge variety of dairy foods and ingredients. It sells to the highest bidder, so the percentage that gets exported depends on how well global commodity prices compare with local dairy markets. In 2011/12, 49 per cent was exported, which is pretty typical.

But Victorian farmers are demoralised. Many are in desperate financial positions. The effects of the collapse in global commodity prices, skyrocketing energy prices, high feed costs and the high Australian dollar are clear but shrouded in secrecy is the impact of the supermarket war.

While $1 milk gets all the attention, other dairy products like butter and cheese have also been hit by the supermarket price war. Murray Goulburn has invested heavily in relaunching its supermarket brands and CEO Gary Helou infamously got all hot under the collar last month about Coles’ refusal to stock MG’s Devondale cheese. But nobody can talk about how Coles and MG negotiate our livelihoods behind the tinted windows of “Darth Vader’s Castle” as the Coles HQ is fondly nicknamed by its suppliers.

We’ll probably never know just what the damage has been – only that our situation is very different from that in states like NSW and Queensland where there is pretty much total reliance on fresh milk sales.

But what those claiming to be “the voice of reason” dismiss is the effect ‘milk that’s cheaper than water’ has on the psyche. It signals to farmers that a fair go no longer matters. And that’s what hurts the most on Australia Day.

How to rescue dairy – from the nutty to the tricky

Dairy farmers gathered in their hundreds in south-west Victoria last night for a crisis meeting. What makes it a crisis? Very simply, dairy farmers are working seven days a week for free and petrified of losing our shirts.

Local agribusiness bankers tell me they are busy refinancing and arranging extra debt but land sales are at a standstill around here. Reporting on last night’s dairy crisis meeting, Simone Smith of The Weekly Times, described a “dire picture”:

“Warrnambool-based Coffey Hunt farm accounting specialist Garry Smith said across his client-base, farmers milking mostly between 450-500 cows, average feed costs were up 15 per cent – a $150,000 rise – with the cost of power for the first quarter of the year up 50 per cent.”

“He estimated across his client-base earnings would be 10 per cent down on last year with a combination of cash-flow and income down $260,000.

“Charles Stewart real estate agent Nick Adamson said better quality farms had dropped in value between 8-15 per cent, while others were up to 45 per cent down on peaks of several years ago.”

None of this is pretty and astonishingly, Peter Reith decided to appear on ABC’s The Drum website with a six-point plan that, at first, I thought was a spoof. Take a look and make up your own mind.

It’s not as simple as cutting petrol taxes and municipal rates. It’s tricky because of this conundrum: milk and dairy foods are considered so important that nobody wants to pay what they are worth to produce.

Every day I read comments on Twitter that go something like this: “My kids drink three litres of milk every two days, so I can only afford to buy $1 milk”. I know first-hand how tough it is to feed a family when you’re on struggle street, so I have a lot of sympathy for people in this predicament and it’s impossible to respond with anything other than compassion.

It’s hardly surprising, then, that there is no political appetite for an increased milk price. But the truth is this: dairy farmers should not and cannot fund an ersatz Australian welfare system by subsidising the cost of food. Welfare is the role of government.

So, while my dander is up, here’s a simple list of five tricky things that would make a big difference to this dairy farmer:

1. Deal with the supermarket duopoly
Down, Down, Down is not about you, dear milk drinker. The real reasons for the supermarket war are expressed in corporate ROIs rather than family budgets. At the end of the day, it will be the little people with the least market power – you, the shopper, and me, the farmer – who will pay.

2. Level the global playing field
Julia Gillard announced that Australia would be Asia’s food bowl but guess what? Unlike the world’s most powerful dairy exporters, the Kiwis, we do not have a free trade agreement with China, putting Australian dairy at an immediate 15% disadvantage. Nor do we receive the government subsidies that support our European and North American competitors.

3. Assist with the impact of the carbon tax
Australian dairy farmers are suffering a double whammy under the carbon tax. First, processors are passing the extra cost onto us in the form of lower farm gate prices (because the consumer won’t pay extra and nor will global commodity markets), reducing our incomes by around $5,000 each per year. At the same time, our costs – especially electricity and refrigerants – are rising in quantum leaps each quarter.

4. Support smart farming
Long exposed to the blow-torch of global export markets without subsidisation, Australia’s dairy farmers are among the most efficient in the world, according to research body, Dairy Australia. We can produce very high quality milk at a very low cost because we have invested in research and development. No longer. We are spending less and less on R&D and the Victorian government has just made massive staff cuts to our brains trust, the Department of Primary Industries.

5. Remember, I am the goose that lays the golden egg
I will not be able to continue to deliver high quality milk at such a low price while enhancing the environment and caring for our cows without sacrificing the basic wellbeing of my family and that, I refuse to do.