Why many farmers are unhappy about great prices

A journalist rang me the other day with a really simple question: was I happy about Fonterra’s opening price of $5.85kgMS, the equivalent of about 45 cents per litre?

Simple question. Answering it is not so simple.

Historically, it’s a really good price
Honestly, I can’t remember an opening price this high. For those of you not familiar with the intricacies of our milk pricing system, processors announce an “opening price” at the start of each financial year, which is what they consider a conservative figure that should only increase as the year progresses.

Freshagenda’s chart of this year’s opening prices shows it’s not just Fonterra offering a good start to the year.

ProcessorPrices

Source: Freshagenda

Compare those opening prices for 18/19 with the closing prices over the years in Freshagenda’s chart below. Pretty darn good.

FreshagendaCdtyFgate.jpg

Source: Freshagenda

But farmers need to make up lost ground
Dairy Australia’s revelation that one in five dairy farmers is planning to quit discussed in my last post helps to explain why farmers are not celebrating. We have a lot of ground to make up.

Last year’s Dairy Industry Monitor reported that the Victorian farmers in the project (generally larger and better resourced than the average farm) had a return on assets of just 2.5% in 16/17, following on from 0.6% in 15/16.

Many farmers have higher debt loadings than ever before.

And the big dry is sending the cost of feeding cows skyrocketing
Even with a great price this year, there’s a real likelihood we’re going to struggle again.

The pellets we feed the cows during milking have surged to an eye-watering $400 per tonne while the stream of B-doubles heading to drought-affected NSW is making reasonably-priced hay suitable for milkers impossible to find.

Raiinfall2018toJune.jpg

Bureau of Meteorology: Precipitation year to date

All this while (with the exception of the lucky devils on the SW coast) it’s been horribly dry on farm, with the increasing prospect of another El Nino on the way for Spring.

To top it off, expectations were high
Analysts have been rather bullish, including Freshagenda, which as recently as June 6, wrote:

“Our forecast range for the 2018/19 average southern Australia farmgate milk price has improved to $6.10 to $6.50kgMS with a significant lift in the underlying commodity milk value (CMV) since our April update, which we now see in the range of $5.60 to $6.00kgMS.”
Freshagenda

It’s not just been farmers blindly following the opinions of analysts, either. On May 23, Fonterra increased its forecast closing price for Kiwi farmers to NZ$7.00.

Add this to the hype surrounding competition for milk supply from processors aggressively investing in stainless steel and expectations were sky-high. And the opening prices fell short.

“All I want is a market driven price, not a processor driven price,” one prominent farmer told me after Fonterra’s opening price announcement.

That’s where that second chart from Freshagenda comes in again. Are we getting a fair go? Is all that value adding reaping dividends?

FreshagendaCdtyFgate

So, where to from here? For the final word on all the intricacies of milk pricing, I’ll leave you with this video from the Freshagenda team.

 

ACCC explains mandatory codes

mandatorycode

Since the ACCC recommended a mandatory code for the interactions between dairy farmers and processors, there’s been a lot of talk about what this might mean. To help sort the fact from the fiction, I asked the ACCC’s deputy chair, Mick Keogh, about the fundamentals.

Milk Maid Marian is really grateful to Mick for his explanation.


MickKeogh2

Mick Keogh, deputy chair, ACCC

 

MMM: How does a mandatory code differ from a prescribed voluntary code?

MK: There are three types of industry codes – (1) a voluntary code (such as the current Dairy Code), (2) a prescribed voluntary code (such as the Food and Grocery Code), and (3) a mandatory code (such as the Horticulture code).

A voluntary code is one developed by industry which participants voluntarily agree to by becoming signatories, but which has no penalties attached to breaches, and participants can choose to opt out of at any time without disadvantage.

A prescribed voluntary code is one which participants voluntarily agree to by becoming signatories, and which can have penalties or sanctions associated with breaches by participants.

A mandatory Code is one which all the relevant industry participants are bound to abide by, and which may have penalties or sanctions if a participant breaches the code.

The key difference between a prescribed mandatory code and a prescribed voluntary code is that a prescribed voluntary code only applies to industry participants who voluntarily choose to become a signatory to the code. Signatories can choose to withdraw and cease to be bound by a voluntary code at any time (although they will still be liable for breaches that occurred while they were signatories). In contrast, a mandatory code is legally binding on all industry participants specified within the code.

Prescribed voluntary codes and mandatory codes are both developed by Government in consultation with industry participants and the public, and administered by the ACCC. The ACCC can take enforcement action against parties that a prescribed voluntary code or mandatory applies to. Remedies include injunctions, damages, non‑punitive orders and other compensatory orders. Penalties and infringement notices may apply, but are more likely in a mandatory code than a prescribed voluntary code.

Any person who suffers loss or damage due to a contravention of a prescribed voluntary code or mandatory code can also bring a court action for damages.

MMM: What are the pros and cons of each?

MK: In the context of the dairy industry, the ACCC found that a mandatory code is likely to be stronger than a voluntary code in both the coverage of its enforceability and the potential for its substantive obligations to address issues which lead to market failures. We found that dairy processors are unlikely to volunteer to be covered by a prescribed voluntary code that is strong enough to address the market failures we identified in the dairy industry.

MMM: What is the normal process involved in drafting a mandatory code?

MK: If the Government agrees to pursue the creation of a prescribed mandatory code, the process will involve several stages, including stakeholder consultation with businesses, consumers and relevant government agencies, including the ACCC.

Following consultation with the industry, the responsible department will prepare a draft Regulatory Impact Statement, which evaluates the relevant issues and problems in question, objectives of a potential code and options for addressing the identified issues. This statement would be released for public consultation before it is finalised.

Afterwards the Department with policy carriage will draft the text of the proposed code and may  seek public feedback on it.

When it is finalised, the Governor General will make a regulation prescribing the code. The code regulation will then be registered and tabled in each House of Parliament, where it can be disallowed within 15 sitting days in each House.

Treasury processes to prescribe an industry code are set out at: https://treasury.gov.au/publication/policy-guidelines-on-prescribing-industry-codes/process-and-consultation-after-a-decision-to-prescribe-an-industry-code/

MMM: How long does it typically take to put a mandatory code in place?

MK: The time it takes to put a prescribed code in place (from announcement to implementation) will depend on a range of factors.

The time can range from about a month (as was the case for the Wheat Port Code and the Sugar Code) to several years (including a transition period, for example for the Horticulture Code).

MMM: What is involved if stakeholders agree that a mandatory code needs to be revised?

MK: A prescribed mandatory code may be subject to review after it has been implemented. For example, the Sugar Code must be reviewed within 18 months of its commencement, and the Wheat Port Code must have its first review within three years of its commencement.

The review involves a public consultation process to seek feedback from a wide range of stakeholders. A review can be conducted by the Government Department with policy responsibility for the particular code or alternatively by an independent body or industry experts. The review may consider options for repealing the code or amending it.

 

 


 

Dairy crisis in dates disgraces ADF and minister

Here’s a potted history of the dairy crisis. It’s worth remembering:

April 2016                   MG stuns the dairy community with the clawback

May 2016                    Fonterra follows suit, crashing its price

May 2016                    Milk price index announced

August 2016                Ag minister Barnaby Joyce says he will put an end to $1 milk

September 2016          Senate inquiry into dairy industry announced

October 2016             Treasurer Scott Morrison instructed the ACCC to hold an inquiry into the competitiveness of prices, trading practices and the supply chain in the Australian dairy industry.

August 2017                Senate committee report released

November 2017          Consultant chosen to deliver milk price index

November 2017          ACCC Interim report

December 2017           Milk price index consultant sacked

March 2018                 UDV opposes mandatory code

April 2018                   ACCC final report

May 2018                    Milk price index due “mid year”

May 2018                     ADF: “we cannot make a snap decision” on mandatory code

June 2018                     Minister Littleproud: no timeframe for decision on mandatory code “will investigate thoroughly”

So, after all this, where are we today, just two weeks from a new set of pricing for our milk?:

  • No action on ACCC recommendations
  • No milk price index
  • No opening price from either of the big two processors
  • $1 milk AND $6 cheese, with promise of even lower retail milk prices

No wonder farmers are angry. The can has already been well and truly kicked down the road. The independent umpire has spoken.

After two years of investigation and analysis, what justification do the ADF and Minister Littleproud have for waiting any longer to do their jobs and take decisive action to protect dairy farmers?

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?

How much is a dairy farmer worth?

EdithDark.jpg

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.

UPDATE: Milk Price Index definitely back on

Index

SECOND UPDATE 23/01/18: Hours after the Department provided this update, the Minister’s office rang to clarify the CMPI’s status with this news:

“The Minister last week met with dairy farmers and senior dairy leaders who expressed support for the further development of the dairy price index.

“The Government is committed to working with industry to deliver the index to provide dairy farmers with extra information to help them plan and risk manage their businesses.

“The Minister is encouraged by the positive approach of dairy farmers to rebuild from recent challenges to create a stronger and more profitable future for the industry.”

It’s on again!


UPDATE 23/01/18: After the UDV president, Adam Jenkins, tweeted that the post below was incorrect, I asked the Department for further clarification. Here is the response:

  • “The contract in place to deliver the Commodity Milk Price Index was terminated by mutual agreement.”
  • “The department will put options to the Minister for Agriculture and Water Resources on the best way forward to deliver on the government’s commitment to achieve greater transparency and market signals in domestic and global milk prices, in accordance with the advice received from industry.
  • “This may still be via the CMPI.”

Meanwhile, Milk Maid Marian has been informed that the team which had won the contract to deliver the Commodity Milk Price Index has not been permitted to engage with stakeholders since late last year.


The Milk Price Index intended to offer farmers transparency around farmgate milk prices has been quietly scrapped.

It’s not yet clear where the $2 million set aside for the project will be reallocated.

In response to an email from Milk Maid Marian, a spokesperson for the Department of Agriculture and Water Resources said:

“The Department of Agriculture and Water Resources and Webber Quantitative Consulting have mutually agreed to terminate the contract to deliver the Commodity Milk Price Index.”
“The department will put options to the Minister for Agriculture and Water Resources on the best way forward to deliver on the government’s commitment to achieve greater transparency and market signals in domestic and global milk prices, in accordance with the advice received from industry.”
For Milk Maid Marian’s money, some really rigorous research into how the milk pricing system could be reshaped to address the issues identified by the ACCC would be very well spent indeed.

 

ACCC delivers a ladder for dairy farmers

All I could think as I scrolled through the interim ACCC dairy report was “Wow!”. Any fears farmers had that the ACCC would fail to understand the intricacies of our industry have been well and truly put to bed. This report proves the regulator gets it.

“…the problems we have identified in this inquiry emanate from the inherent bargaining power imbalances in the industry, particularly between processors and farmers.”
– p. 22, ACCC Dairy Inquiry Interim Report

While there are more than 200 pages of very interesting information, the really important section deals with the regulator’s eight recommendations:

1. Processors and farmers should enter into written contracts for milk supply that are signed by the farmer.

2. All processors should simplify their contracts where possible, including by minimising the number of documents and clearly indicating which documents contain terms and conditions of milk supply.

3. Milk supply contracts should not include terms which unreasonably restrict farmers from switching between processors.

4. The industry should establish a process whereby an independent body can administer mediation and act as a binding arbitrator or expert in relation to contractual disputes between farmers and processors.

5. Farmers should ensure they have properly considered the legal and financial implications of contracts with processors.

6. Processors should publish information identifying how their pricing offers apply to individual farm production characteristics to enable better farm income forecasts.

7. The Voluntary Dairy Code should be strengthened
Notwithstanding Recommendation 8, the Voluntary Code will continue to operate for at least the short-to-medium term. The following amendments should be made:
(a) processors to include a comprehensive dispute resolution process in their milk supply agreements, including where this relates to compliance with the Voluntary Code itself
(b) processors to provide timely price and other contract information before requiring farmers to make a decision about renewing a contract.
(c) with regard to section 6 of the Voluntary Code, removal of the incumbent processor’s first right of refusal regarding a farmer’s supply of milk to an alternative processor.

8. A mandatory code of conduct within the Competition and Consumer Act 2010 should be considered for the dairy industry.

It’ll take time to digest the report properly and I’m betting that some of the details will be hotly debated over the next few weeks. That’s a good thing.

This ACCC inquiry is not a whitewash. The system is broken and such a strong report offers us a way to climb out of the deep hole we’re in towards the light.

The change has only just begun: Rabo

Buckle up. That’s the message threaded right through a report on Australia’s dairy supply chain by Rabobank‘s Michael Harvey released today.

While so many of us are aching for some stability, for things to just settle down a bit, the report crystallizes fears that change has only just begun.

Michael’s report cites three causes for continuing change:

  1. Down by 800 million litres in southern Australia, milk production is at its lowest in two decades
  2. Australia’s largest processor, MG, has “stumbled and remains under pressure”
  3. The lower price farmers are paid for milk has triggered a boom in stainless steel investment and aggressive recruitment

The scale of the shake up is huge

RaboProcShare

p. 2, Harvey M., (2017), The Australian Dairy Supply Chain

While Rabobank’s chart illustrates just how much milk MG has hemorrhaged, it also shows that MG continues to be a critical player in the whole industry’s fortunes. As does Fonterra, now more than ever.

Fonterra is abandoning the Bonlac Supply Agreement, which used the MG price as a guaranteed baseline, for something yet to be announced.

MG, the Rabobank report concludes, has suffered “structural damage” that will, if it can recover, take years to repair before the co-op can resume the role of price setter.

So, here is the kicker in Michael Harvey’s own words:

“The reality is that the old system of price discovery for raw milk has broken down and a new method of price discovery will need to emerge, meaning that, in the future, dairy farm operators will be operating in a more commercially oriented and flexible market for their milk.”
– p. 4, Harvey M., (2017), The Australian Dairy Supply Chain

Is it a warning? Perhaps. Change is often difficult but it brings fresh opportunities, too.

Competition will drive farmgate milk prices for a while
Rabobank notes that while milk supply has fallen by 800 million litres, enough new stainless steel is coming on line this year to process another 700 million litres, with more expansion planned. It expects competition to drive milk prices in the medium term.

Milk flowing beyond borders
According to the report, there is an increasing appetite for milk processors to spread supply risk beyond their traditional collection areas.

We’ve seen this locally, with Warrnambool Cheese & Butter, for example, recruiting milk in Gippsland.

A rethink of the current price system
Michael Harvey devotes a significant portion of the report considering the impact of the production decline on Australia’s status as a preferred supplier. “Alarm bells are ringing for international customers,” he writes.

In this context, Mr Harvey also discusses the tension between the need for flat milk supply versus the lowest cost of milk production – on one hand processors can’t manage a very “peaky” supply and, on the other, the discounting of Spring milk has forced up the cost of production for farmers, stifling growth.

Let’s just hope that out of this crisis comes a fresh start.

Planning for disaster while dodging a bullet

Daffodil
Today’s blossoming of the very first daffodil reminded me we’re on the cusp of Spring – our 12 weeks of make or break on the farm.

Only yesterday, a banker asked me how the outlook was on farm. Anxious is the answer.

The feed pinch
The big dry has sent grain futures soaring, signalling that we’re in for exorbitant grain prices by Christmas.

Meanwhile, it’s been very hard to grow grass and the dry subsoils provide little moisture in reserve for what the Bureau is predicting will be a drier-than-normal Spring.

While we’ve invested heavily in a small amount of irrigation infrastructure, the dam is still well below full and we have no access to the aquifer.

At the same time, high quality hay suitable for the milkers is in very short supply, so I’ve been trying to lock in feed this harvest before it becomes too tight to mention.

The money pinch
Most dairy products are either traded internationally in US dollars or sold to domestic customers at a rate linked to international commodity prices.

This means that as the Australian dollar rises against the US dollar, the value of our milk falls. And rise it has, reaching 80 cents for the first time in two years.

Green shoots bring hope
On the other side of the ledger, there’s been cause for hope this morning.

Despite the exchange rate fears, the processor we supply, Fonterra, lifted its price for milk from $5.30kgMS to $5.50kgMS (from roughly 40.5 cents per litre to about 42 cents).

Second, I found a heap of worms slithering across the track in a bid to avoid the saturated soil. Yes, saturated! For the first time this winter, we finally have soft top soils.

Better late than never. Let’s hope the rain keeps coming and we don’t need to feed the cows massive amounts of grain to get through another drought.

Worm

Playing games with our lives

GAMP

GAMP: Before MG in Gippsland

With just a couple of exceptions, the processors seem to have learned just one thing from the last year of chaos: loyalty is now a luxury item.

The jumble of opening prices, incentives, secret deals and long-term contracts with short-term prices shows that, by and large, we are in an era where it’s every man, woman and child for themselves.

It wasn’t always this way. Until recently, you could not buy loyalty.

Even though there were more lucrative options, most Australian dairy farmers chose to supply the last big co-op, Murray Goulburn. For generation after generation, we knew in our hearts that only a strong co-op, which put farmers first, should set the pace for the farmgate milk price.

Since the April/May debacle when farm gate milk prices crashed to disastrous levels, farmer loyalty has become gossamer thin. The main theme from Dairy Australia’s farmer survey reported in its June Situation & Outlook was that “Trust in processors has taken a knock”. Err, yes, just a little.

“In the past 12 months, 11% of respondents changed the processor they supply and a further 17% would like to change supplier – 9% are considering it and 8% would like to change but are unable to.”
“Farms with herds greater than 700 cows were most likely to have changed processor or to be considering a change.
“In general however, most farmers tend to be loyal to their processors historically and 61% have remained with one processor for the past 10 years.
“Milk price is predictably the primary reason for changing or considering changing processor, however 21% also expressed concerns with processor management and the treatment of farmers, 12% were concerned about the ‘clawback’ and 8% lack trust in their company and feel they have not been honest.”
– p. 5, Dairy Australia Situation & Outlook, June 2017

DA’s survey was conducted in February and March – well before MG opened first, very early. Everyone was watching. For years now, MG has set the benchmark milk price, pushing it as high as it could go in the spirit of a farmer-owned co-op.

This time was different.

MG’s price of $4.70 per kg of milk solids (about 36 cents per litre) was simply far, far too low. MG’s competitors needed milk and were willing to pay not just a little more but a lot more and farmers have been scrambling for the life boats in a bid to survive a third tough year in a row.

Meanwhile, other processors have been offering “loyalty” bonuses or locking farmers into long-term supply contracts without the long-term prices to match. It all flies in the face of the honour, transparency and simplicity the processors are apparently set to pledge under the Code of Conduct.

Today, MG has performed a minor miracle, lifting its opening price from the miserable $4.70 to $5.20 before the season has even begun. This 11 per cent increase puts the MG price close to breakeven for many of its suppliers.

It’s fantastic news.

Farming families across the country will breathe a little easier tonight and, for that, I am very grateful.

But, like the “forgiveness” of the MSSP, like Fonterra’s 40 cent payment, this about-face leaves me wondering why it was necessary to inflict so much pain and hardship on farmers in the first place.

Bitterness is never a becoming attribute but, with processors pulling one stunt after another seemingly without regard for the farmers stretched to their financial, physical and mental limits, it’s getting harder and harder to maintain the faith.