ADF answers conflict of interest questions

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Terry Richardson, ADF president

The ACCC’s Mick Keogh has slammed national peak dairy body, Australian Dairy Farmers for inaction, telling The Weekly Times there were “significant issues with funding sources of ADF”.

According to The Weekly Times article, processors give the ADF about $1 million annually, which it says is more than double the funding from farmers.

It quoted Mick Keogh as saying: “The questions raised with us by dairy farmers was the extent that those funding arrangements coloured their (ADF’s) view of a mandatory code.”.

Milk Maid Marian asked ADF president Terry Richardson to answer some questions and is grateful for his responses.

———————-

MMM: How is ADF funded?

TR: As has been widely reported in recent years, ADF receives funding from a number of sources, including State Dairy Farmer Organisations and investment returns.

Processor funding is used to facilitate project work on their behalf.

MMM: What percentage of ADF’s funding comes from processors?

TR: Funding from processors is via a fee-for-service contract in delivering the agreed Australian Dairy Industry Council’s (ADIC) investment plan.

MMM: How has that model and percentage changed over time and why?

TR: Processor funding was introduced in 2014, but since that time this component has substantially declined.

MMM: What involvement does the ADF have with processor communications? Why did a media release from the ADPF come from an ADF email account?

TR: ADF is not involved in ADPF communications. We do not discuss messaging because we do not want to compromise our position as a farmer representative organisation. However, past practice has been that ADPF has access to ADF’s media network.

MMM: What influence does the processor funding have on ADF policy and how do you create a firewall between this funding and the interests of dairy farmers to avoid conflicts?

TR: ADF has a clear mission statement to provide collective representation for dairy farmers. Processors are not involved in any policy decisions made by ADF.

ADF and ADPF operate independently of each other. Processors are entitled to express their views just like anyone else, but their opinions do not affect the representation we give to dairy farmers.

MMM: How will ADF’s funding arrangements change in future?

TR: We urge farmers who are not members of State Dairy Farmer Organisations to join, have their say and influence the policy direction of dairy advocacy.

Thank you very much, Terry, for offering answers to Milk Maid Marian.

ACCC suggests a Sheriff for the Wild West

Imagine you own a small family business with just one product that you may only sell to one customer for the next 12 months.

That same customer sets the price for your product and the terms. It informs you of the quality of your product and any penalties that apply to failures it deems to have been caused by you rather than during its own handling.

The bare facts are that you sell 100 per cent of your highly perishable commodity to this customer but all of that amounts to less than a thousandth of its supply. You are tiny.

Now, imagine that this, your omnipotent customer, makes a decision that unfairly costs you tens of thousands of dollars. What do you do?

You call or write a letter, hoping and praying that this customer does the right thing. But if it doesn’t?

This scenario is reality for Australian dairy farmers and it’s not healthy. It’s almost irrelevant whether the processors are doing the right thing at the moment or not because such an imbalance of power is irresistible. History proves it so.

The industry’s answer has been to develop a voluntary code, which does help to benchmark standards of behaviour but offers no independent umpire, no penalties and no redress for breaches.

The ACCC says that’s not sufficient protection for farmers with so little bargaining power. It wants a mandatory code with an independent umpire and penalties for breaches. I, for one, hope the regulator’s recommendations are implemented sooner rather than later.

Federal agriculture minister David Littleproud doesn’t seem averse, responding to a request for comment from Milk Maid Marian with: “I’m glad farmers’ concerns have been shown to be justified and will go through the ACCC’s report carefully.”.

A Mexican standoff as the sun sets on MG

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The sale of MG to Saputo is formalised tomorrow. I’m so pleased for shareholders who feared losing the entirety of their nest eggs that some certainty is restored.

Even so, I’m very sorry to see the loss of the last southern Australian pacemaker co-op. Our farm may have fled MG during the Gary Helou hurricane but until then, it had always been a co-op farm, even before MG made it to our part of Gippsland.

The co-op’s mission was always to maintain the balance of power for farmers in an industry where, typically, each small family business supplies a highly perishable commodity to just one multinational customer. And for that multinational, our milk price represents the single greatest cost.

Should we be alarmed?

Well, tomorrow, we enter the wild west of farmgate milk pricing with something of a Mexican standoff.

You see, under the terms of the now infamous Bonlac agreement, Fonterra is obliged to match or better the price the leading processor pays its farmer suppliers. And, er, that leading processor now appears to be Fonterra itself for most of this season, only to be overtaken by Saputo with its purchase of MG.

At the same time, outgoing MG boss Ari Mervis says Saputo has, “committed for at least the next five years to pay a competitive milk price which is no less than the greater of the price WCB pays its suppliers and the final weighted average Farmgate Milk Price published by the two largest processors in the relevant region.”.

In most regions the two largest processors will be MG/Saputo and Fonterra. In effect, they’re promising, when it comes to farmgate pricing, they will match or beat themselves and each other.

What a mess. While we have the attention of policy makers, farmers must ignore the advice to focus purely on what we can control inside the farm gate. After all, that’s what lost us the co-op in the first place.

It’s high time farmers turned our attention to how farmgate prices will be set once the milk shortage supporting competition is no more.

 

 

Dairy’s brains trust on climate change

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Dairy Australia’s Cathy Phelps was one of the star presenters at a climate change risk management day run by Farmers for Climate Action with the support of the Gardiner Foundation in Yarram. It stoked plenty of interest from farmers who weren’t able to make it on the day, so I invited Cathy to share some of her insights for Milk Maid Marian.  

MMM: An average increase of 2 degrees temperature doesn’t sound like a lot. How would it affect dairy farmers?
CP: The challenge for dairy farmers is not incremental changes in average temperature but increased frequency of climate extremes. Climate change increases the variability of temperature and rain patterns. Extreme events, such as floods, droughts and heat waves and associated risks such as price volatility, pests and diseases become more likely. The timing of when these extreme events occur and their severity will significantly impact how quickly a farming business may recover.

MMM: How will those effects vary in different dairying regions? Are some more vulnerable than others?
CP: The type of impact will vary, some regions may be most impacted by changes in water availability, others by increased frequency of temperature extremes. For example in many areas of Victoria, spring pasture growth is becoming much more variable from year-to-year, generally starting four weeks earlier and also finishing earlier. In the Northern Irrigation Area of Victoria, reduced water availability and summer heat waves is favouring annual winter-active pastures over perennial pastures or deeper rooted species such as Lucerne and tall fescue. Cows that are used to high summer temperatures are less impacted by abnormal heat events than cows in regions where summer temperatures are more moderate.

MMM: What impact will climate change have on the profitability and productivity of Australian dairy farms?
CP: Research conducted by Dairy Australia in partnership with dairy farmers and their service providers found that for dairy regions in south-east Australia the expected impact on productivity is approximately 0.6% per year (but could be as high as 1.2% for businesses that have not adopted strategies to mitigate climate change). This research found the rates of productivity gain required to counteract the impact of climate change on farm profitability would need to be achieved over and above what is considered ‘business as usual’. The impact of this reduction in productivity on farm profit will be dependent on the extent to which dairy producers in other countries are impacted by climate change.

Immediate impacts of changing temperatures on farm profit are already being experienced through increased frequency of heat events. The estimated impact of Victorian November heat wave on farm profit as measured through reduced milk pick up was $3000/farm (see below), not including any carry-over effect well beyond the event.

THIMilkPickups

MMM: How is efficiency and resilience linked?
CP: To beat the cost-price squeeze, businesses often respond by becoming more efficient, optimising returns/unit of input. For dairy businesses being challenged by increased climate volatility this may not be the most sustainable approach as a system running close to optimum will be more vulnerable to shocks such as extreme dry or wet periods. A climate resilient farming system is one that can withstand shocks such as more frequent and extended dry periods, heatwaves or floods.

One strategy to mitigate increased climate volatility and increase resilience is to create buffers in the system, for example increased fodder reserves or greater use of Farm Management Deposits. Buffers reduce reliance on outside inputs. In favourable seasons excess dry matter can be harvested and stored for feeding in less favourable periods. Higher winter growth rates and shorter sharper springs offer an opportunity for additional fodder conservation.

MMM: Does DA anticipate regulation similar to that in NZ?
CP: Currently farm level agriculture activities in Australia are exempt from carbon regulation. In New Zealand agriculture is also exempt however there are plans to bring agriculture into the NZ emissions trading scheme at some stage. It is highly unlikely on farm agricultural activities will be included in any Australian emissions trading scheme in the short to medium term. Pressure on dairy businesses to report and reduce their carbon emissions is coming from customers such as Mars, Unilever, Nestle and McDonalds. These multinationals and many others have made public commitments to reduce the carbon emissions of their supply to chain to meet the COP21 Paris agreement.

MMM: What can farmers do to adapt to climate change?
CP: Australian dairy farmers are already adapting to climate change by:

  • securing inputs (water, fodder reserves, land),
  • mitigating impacts (increasing shade and shelter – Cool Cows, changing pasture species, installing a feed pad),
  • adjusting to suit changed pasture growth conditions (e.g. changing calving times), and;
  • investing in irrigation.

Additional strategies include:

  • developing business management skills to better understand the risk trade-offs between optimising/intensifying their farming business versus building in redundancies/buffers,
  • learning more about the potential value of new precision technologies, data driven decision support tools and different pasture/forage species to mitigate the impacts of climate change for their farm,
  • building understanding of the reliability of short term and seasonal forecasting for their locality to enable more informed decision making around tactical decisions such as increasing fodder reserves, use of nitrogen, culling lower performing cows, and;
  • exploring climate analogues to identify dairy areas where the current climate is similar to their projected future climate.

New and emerging precision and automated technologies, improved connectivity and bioengineering all offer opportunities for Australian dairy businesses to mitigate the impacts of climate change.

Thank you very much, Cathy, and also to Farmers for Climate Action and the Gardiner Foundation for holding the day in Yarram.

Disillusioned dairy

Even though dairy prices were flying high when I took over the reins here as the hopeful but heavily indebted next generation in 2008, the Global Financial Crisis was already forming.

I could see the international commodity prices were going into freefall but, as late as October, our factory rep said there was no need to worry, our milk price wasn’t affected.

A few weeks later, as farmers were congregating for Christmas parties, the announcement came that our milk price could no longer defy gravity. From February, it would be 40 per cent lower. It was the first time the price had dropped like that in more than 30 years.

The entire industry kicked into action. Dairy Australia offered information sessions on budgeting and cost control measures while bankers rushed to refinance loans. I was impressed. It was a crisis but we all pulled together.

The fallout from the 2016 dairy crisis is different. There’s been the same flurry of post-crisis activity from Dairy Australia and the bankers but farmers want more than that and, two years later, we have not “moved on” like we did last time.

This morning, I woke to a flurry of activity on Twitter provoked by an opinion piece in The Weekly Times by farm consultant, John Mulvany.

John takes the lash to processors and farmer representative body, the UDV, saying both know there are big problems but are refusing to act.

“If nothing happens the industry will continue to decline and cost of production will rise. The lack of action by those who can create change is ‘underwhelming’.”
John Mulvany, The Weekly Times

I agree with John entirely, to this point but he loses me in the following and final sentences:

“They know they can achieve a better industry. But their short-term vision and focus on career paths have created a roadblock.”

I think that’s unfair and missing the real problem. The farmers who volunteer their time to make things happen are routinely rewarded for their efforts by getting slammed relentlessly on social media. Some of it gets pretty personal, too.

As one active volunteer and farmer, Lauren Peterson, tweeted, “…some of us haven’t given up but will if keep tearing us down. We’re not the enemy”.

The real problem is that, unless you’re one of the sheltered few already in some form of life-raft, it’s every man (and woman) for himself now. Not enough of us believe that change is even possible. We are too hurt, afraid and angry.

I’m not blaming anyone for that – I often feel much the same – but it’s hardly the mindset needed for cooperation, negotiation and innovation.

Ironically, processors fighting for our milk are unlikely to provide the leadership needed in case it’s not well received and they lose supply. Much safer to work behind the scenes recruiting key supply with special deals and locking in the masses with sign-on incentives.

What will be the circuit breaker?

On tomorrow in Yarram: practical help to future-proof the farm

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The days are rapidly getting shorter but the autumn break remains missing in action. That’s not terribly unusual around here – it has always been fickle – but it’s also very dry.

And, apart from those December downpours, it’s been very dry for a long time. There’s really nothing left in the soil but grass-seed-eating crickets. It’s a tricky time.

Do you sow new pastures now and hope a meaty autumn break (rather than one of those fizzer false starts) arrives in time to sustain the seedlings or do you delay until you’re absolutely sure, only to run out of growing time before winter?

Aaargh! It’s a race where thousands of dollars ride on backing the right horse. This kind of unpredictability makes farming risky (and expensive), not just for dairy farmers but cockies of every creed and commodity.

You need experience, expertise and a bit of luck to get it right.

Tomorrow: lunch with the climate, weather and farming experts for some great ideas

Farmers for Climate Action with the support of the Gardiner Foundation and the FRRR is bringing some insights from experts to town tomorrow to help us manage the shifting seasons.

Dr Luke Shelley from the Bureau of Meteorology’s Agriculture Program will present on the applying seasonal forecasting tools and long-term climate projections to farm decisions.

Ms Catherine Phelps, Dairy Australia’s Program Leader for Land, Water and Carbon will offer tactics and strategies for managing dairy businesses facing climate variability and long-term risks.

I’ll be going and, whether you’re dairying, beef, sheep or any other type of farmer, you’re welcome to come along too (they’re even laying on lunch at the Club Hotel).

Ring Corey Watts at Australian Farmers for Climate Action on 0428 000 037 or email: vic@farmersforclimateaction.org.au to reserve your spot!

Spreading the love at Easter

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Easter around here is beautiful. It’s a time when you get to see, in one glorious street parade, many of the selfless people who make our district tick.

Every Easter Saturday since I was in nappies, the town has stopped to watch the SES, CFA, Surf Lifesaving Club and a gazillion other volunteers do a hero’s turn around the Canary Island Palms that grace the length of the main street.

Actually, pretty much any sober community member is welcome to participate and they do. We waved to senior citizens rolling along on their mobility scooters, children on tinsel-festooned cattle-trucks-cum-floats, a small contingent of electric cars trailing a “The future is electric” banner and even a colossal black horse prancing anxiously as the Caledonian Pipe Band wailed behind him.

It’s a reminder of the diversity of a town so small that your own geneaology is public knowledge.

It’s the kind of event where you recognise people your father knew and introduce your own children to old friends in the same way your parents once did.

The theme of this year’s parade may have been “Wings” but it only served to remind me of our roots.

Time to stand up for rural Australia

I love a sunburnt country,
A land of sweeping plains,
Of ragged mountain ranges,
Of droughts and flooding rains.

– excerpt from “My Country” by Dorothea Mackellar

Dorothea Mackellar was too polite. When it comes to Australia’s fickle seasons, Mother Nature has always had a crabby streak but, these days, the old hag has become nothing short of vicious.

Maybe we’re partly to blame for relentlessly blowing our own foul emissions up her skirts. Whatever the cause, things have changed. This is different. And while I like to think of myself as a resourceful and resilient (aka “bloody stubborn”) type, this is too big to go it alone. We need to work together.

That’s why I joined Farmers for Climate Action and agreed to face the cameras for this ad, which went live last night.

Thousands of Australians are backing Farmers for Climate Action. Will you join us to help stand up for rural Australia?

 

 

 

 

How much is a dairy farmer worth?

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Owning and operating a dairy farm comes with special conditions: working all public holidays and weekends, starting at 5am and finishing at 6pm or so.

Your duties include animal husbandry, machinery and agronomy skills, coupled with the managerial responsibilities of a business that turns over about $800,000 annually.

But, erm, your pay? If you’re lucky, you get paid. As ABARES notes:

“Over the 10 years to 2015–16, the proportion of dairy farms recording negative farm business profits averaged 51 per cent a year.”
– ABARES, Farm Financial Performance

Since only half of us make a profit in any given year, many farmers simply do not pay ourselves for all the hours we work. Officially, though, we are due the grand sum of $28 per hour. This is the value of “imputed labour” – the work done by family members like Wayne and me that is unpaid.

As Dairy Australia explains in its DairyBase fact sheets:

“Imputed labour hours are valued at a standard rate per hour and reflect
what it would cost to replace those hours with paid labour.”
It’s about the same hourly rate promised to a fill-in nine-to-five handyman.
Handyman

 

It’s rather a lot less than the median $34.60 an hour paid to Australian male full-time employees. And, strangely, I can’t see how I could replace Wayne or myself for $28 per hour if one of us fell seriously ill.

Assuming we could find someone who, “under the direction of the owner or manager uses their expertise and skills in order to supervise and maintain the operation of a dairy farm,” that would be a Farm and Livestock Hand, Level 8 (FLH8).

Under the Pastoral Award, the minimum rate is $22.80 per hour, with time-and-a-half for overtime and double time for Sunday milkings. Assuming Wayne and I were only working 50 hours per week (the official industry standard for one FTE), the numbers look like this using Dairy Australia’s calculator:

PayRates

That’s dizzyingly close to $28, isn’t it? But it doesn’t include the 9.5 per cent superannuation guarantee payment. That brings the hourly cost up to $30.43, well over the imputed labour cost of $28.

But we’re still not finished. Full-time employees are also entitled to annual leave and sick leave. Unlike some businesses where things can be put on hold for the odd sick day or even week off, we’d have to hire a casual to fill their shoes. That tots up to 25 days.

Let’s assume that a person who can work unsupervised at FLH5-level (no management responsibilities) can cover those absences. If the fill-in person works the same hours as the employee on leave and is paid the minimum award rate with the 25 per cent loading for casual rates, it looks like this:

PayRatesCasual

If the casual works the same 50 hours per week as the permanent for four weeks of annual leave and another week of sick or personal leave, the cost of those entitlements is $7620 per annum.

Amortised over the 2552 hours worked by the replacement for me or Wayne each year, that adds another $2.99 to the imputed labour cost.

The bottom line

So then, at the minimum rate, the replacement for Wayne costs $27.79 plus $2.64 superannuation plus $2.99 in “fill-in labour” to cover leave. That’s $33.42 all up, without worker’s compensation costs!

Of course, I have made a lot of assumptions here, including that:

  • the owner-operator only works a 50-hour week (in line with industry standards)
  • the owner-operator works weekends and public holidays
  • farm work, which does not involve feeding and watering cows (such as milking), takes six hours on Sundays
  • there’s not a good-sized gang of other staffers who can take up the slack while the main person is on leave
  • someone of skill level FLH8 is needed full-time
  • you can recruit and retain a skilled FLH8 who is happy to accept the minimum rate under the award
  • the owner is still able to guide the business

These assumptions are based on the likely scenario for an average-sized farm, which milks 261 cows. Because there is about one FTE for every 100 milkers, there are only two-and-a-half FTE equivalents on the average farm.

Staffing such a farm with a mix of FLH8 and FLH5 creates two permanent full-time roles and other part-time family labour or maybe a relief milker. In the real world, you can’t divvy up that FLH8 role into several positions with lower pay scales.

The going rate

I asked CFM Dairy Recruitment‘s Fiona McIlveen for the going rate to replace myself or Wayne. Upwards of $80,000 per year, she said, which is the equivalent of about $31 per hour.

“For a smaller farm milking 180 to 250 cows, you’d be looking at a range of $80,000 to $90,000,” Fiona said.

“For more than 300 cows, it would be more like $80,000 to $120,000.”

Where does $28 come from?

Dairy Australia Workforce Development Program Manager Sally Roberts explained it this way:

“It is important that dairy farmers can make informed commercial decisions when entering into share farming or leasing agreements,” Ms Roberts said.

“Dairy Australia’s Fairness Affordability Calculator and the Leasing Property Calculator give farmers the tools and information they need to help safeguard the profitability of their business and manage some of the risks associated with such agreements.

“The imputed labour description used in both calculators provides an accurate market rate for the cost of labour on a commercial dairy farm.

“Dairy Australia recognises that farmers involved in the running of their businesses undertake the full range of activities within the dairy business. Some of their work is at CEO level, some is at production manager level and some at farm hand level.

“All of the work is vital to the effective operation of the farm business, but it all has a different value commercially.

“While both calculators were developed off a strong research base, they are intended only as a guide and, given the complexities involved in share and leasing agreements, there will be situations where other considerations come into play when calculating imputed labour costs.”

“Background:

  • The value of $1.00/kg MS to $1.10/kg MS is based on an analysis of DFMP and private consultant data detailing labour costs for dairy operations that were entirely dependent on paid employees to carry out the work of the business.
  • It is important to note that the value comes from the total amount spent on labour, including but not limited to wages, bonuses, work care insurance and superannuation.
  • Publicly available data on this topic is available from the Dairy Farm Monitor Project.
  • The data indicates the total commercial labour cost for a farm fully dependent on paid employee labour ranged from $0.86/kg MS to $1.44/kg MS, with an average cost of $1.09/kg MS.
  • These calculations were based on data obtained from dairy farms in Tasmania and Victoria in 2013/14, which was when the Share Dairy Farming in Australia Model Code of Practice was released.
  • DFMP for the 2016/17 financial year shows dairy farm businesses relying entirely on commercial labour have paid between $1.03/kg MS and $1.23/kg MS, with an average of $1.13/kg MS
  • Dairy Australia is in the process up updating both the Fairness and Affordability Calculator and the Leasing Property Calculator to reflect the most up-to-date data.”

What does this mean?

Using Dairy Australia’s own calculators, it’s pretty clear that you could not legally replace me or Wayne for $28 per hour and Dairy Australia’s own process for arriving at the figure does not appear to take employment law into account.

Why it matters

Such a low figure for imputed labour distorts the view of profitability at the farm gate.

If we “pay ourselves” at this rate, we look more profitable than we really are, which means policy makers can continue to shake their heads as farmers demand a greater share of the pie.

More importantly, what message does this send to the next generation of farmers?

Twenty-eight dollars an hour would not be enough, even if we were to earn it in real life rather than on a spreadsheet.

Milk Choices: let’s explore this further

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Milk Choices explores an open market for milk at the farm gate

A team of volunteers has just launched a novel idea: what if dairy farmers could sell our milk to more than one customer? It’s a radical concept in dairy circles but not for any other business.

The volunteers have called the concept “Milk Choices” and say the time is right for a fresh look at the way milk is traded at the farm gate. And why not?

When the Milk Choices group asked me to help explain the idea, I jumped at the chance. It’s always important to consider the alternatives and this one may well change things for the better.

Put simply, Milk Choices involves an open market for milk would help farmers and processors manage risk and increase their profitability.

It’s not a working model yet – just a concept – and the Milk Choices team wants all of us to have a say in how it develops.

I’d highly recommend learning more at the Milk Choices website and, if you can make it, hear Scott Briggs present the idea in person at the Australian Dairy Conference this week.

To get inspired, take a look at the quick little video below.