Australian dairy farmers

Biosecurity dairy debacle: what farmers need to know

/ dairymilkmaid / 3 Comments

Forget mad cows, this time last week, the milk maid was practically frothing at the mouth. The MLA had told me there were new rules but – not to worry – just go ahead and break them.

Every time farmers sell cattle, we need to accompany them with National Vendor Declaration (NVD) forms. From October, those forms will include new sections on biosecurity and animal welfare.

We’re going to be selling cows again soon so I figured it was a good idea to get everything in order. I checked the NVD website auspiced by Meat and Livestock Australia (MLA) and did the education segments but still couldn’t work out what else I needed to do. So I rang the MLA’s helpline.

What a mistake that was. To cut a long story short, I was referred to the Animal Health Australia biosecurity plan template. Jeepers. Among the dozens of requirements appears to be the tracking of all movements across the property and decontamination of vehicles as they move from one “zone” to another.

Despite bearing the Australian Dairy Farmers logo, it’s totally impractical for most dairy farms. Implementing it in the two weeks before it came into force? Absolutely impossible.

When I asked what the implications were of failing to take the recommended actions, I was told that I didn’t need to prove I’d done any of it – after all, the chances I’d be audited were pretty remote, David, the MLA man added. Just tick the box declaring I had.  Righto. All fixed. Not.

When I rang last week, Dairy Australia said it was still working on a solution for dairy farmers. Now, thankfully, Dairy Australia’s manager of sustainability including food safety and integrity, Helen Dornom, has pulled off a minor miracle with this:

“Dairy farmers have been deemed to be LPA equivalent based on the dairy QA programs currently in place and underpinned by dairy licences and a legislated requirement for on-farm food safety programs.”

“As well, the dairy industry is developing a biosecurity app to provide dairy farmers with an easy to use program that will deliver a personalised biosecurity plan for each dairy farm. The LPA module provides a template for biosecurity plans, as does Animal Health Australia. 

“The LPA template is based on the AHA template – and designed to help all livestock producers provide evidence of implementing the biosecurity requirements. The dairy app will be more customised to individual dairy farms.

“The industry is also developing a monitoring program for Animal Health and Welfare practices and has provided all dairy farmers with a copy of the Animal Welfare Standards and Guidelines for dairy farmers – distributed through dairy companies at the end of 2014.”

“The key message for dairy farmers is that they are exempt from the need to undertake the LPA modules (although they can do them if they want to) – and short-term, do not need to take any action as they are deemed to be LPA accredited. Dairy farmers will also be exempt from LPA audits once the dairy farmer’s PIC is linked to his/her current dairy licence number.”

So, in other words, don’t call MLA when the time comes to send your cows to market. Don’t worry about the big pack of info on its way to your mailbox right now. Don’t bother going to any of those biosecurity sessions around the country. It’s all been rather like a scene from ABC’s Utopia.

Of course, if you have beef cattle on your property, too, then that’s another matter. Panic.

UPDATE 22/09/17: A series of emergency meetings has yielded this clarification for dairy farmers by the MLA: https://www.mla.com.au/meat-safety-and-traceability/red-meat-integrity-system/red-meat-integrity-systems-newsletter/what-the-changes-mean-for-dairy-farmers/

 

The change has only just begun: Rabo

/ dairymilkmaid / 4 Comments

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.

Light at the end of the tunnel: ADF’s Terry Richardson

/ dairymilkmaid / 2 Comments

If there’s one word dairy farming feels like at the moment, it’s exhausting. Sometimes – often – I wonder why we keep on slogging away. So, I asked dairy peak body, the Australian Dairy Farmers, to write a guest post titled simply “The Light at the End of the Tunnel”. It’s not an easy piece to write and I am incredibly grateful to ADF president, Terry Richardson, for taking up the challenge.

ADF president, Terry Richardso

ADF president, Terry Richardson

Last year was tough. It was tougher than tough for a lot of dairy farmers.

So, is there light at the end of the tunnel? I think as a farmer you just get used to riding a bike up and down those hills. To keep their heads above water, farmers must keep peddling their bike.

I could start talking about the global market showing a slight upward trend, or I could talk about the things that we have been working on to make sure last year never happens again.

There isn’t a quick fix and there is no silver bullet.

While we are an industry that has been under intense pressure, we are also an industry that has the know-how and resilience to overcome adversity and thrive in the long term.

ADF, together with the state dairy organisations have fought hard for farmers and continue to do so. Even though we won’t be able to solve all the issues farmers are facing, we have been working behind the scenes to relieve some of the pressures. We want to ensure that an unfair share of the risk in the value chain is not taken by the farmer and that events last year don’t ever happen again.

Our first aim is to show you that there is a tunnel. To us, this is the ongoing prosperity of dairy farmers’ and our clear intent is to ensure no dairy farmer is ever made to feel vulnerable over processor decisions. This is the reason we are working on a code of practice for contractual agreements between farmers and their processors.

Next, we need to show you that there is a light. The Effects Test is a tool regulators can use to judge whether a company is acting to unfairly reduce competition. With the potential for use in examining the business practices of the large supermarkets in Australia, and their strategies around $1 per litre milk, and $6 kg cheese.

Lastly, the Commodity Milk Price Index will be a tool farmers can use to better understand and plan for market volatility throughout the Australian dairy supply chain. This is the bike.

We need practical and viable solutions to increase transparency in the way the milk pricing system works, and to simplify milk contracts to ensure the volatility of the market is better balanced. Improving equity and transparency through the supply chain is one of the matters ADF is driving with the Australian Competition and Consumer Commission and the Federal Government.

We can’t do this alone, collaboration is the key to get us where we need to be. Our industry relies on all the elements to operate effectively. Farmers need processors and processors need customers big and small – so the solutions require all of us to work together to ensure a positive future.

While we can show farmers the tunnel, offer them a light and hand them the bike by working on the solutions for a long, sustainable future, it is still important that we continue to develop and improve these tools so farmers can keep peddling.

Farmers can help achieve this by grabbing every opportunity that comes their way, getting involved, joining a policy discussion through their state organisation and by showing the community that dairy farmers – regardless of the challenges they face are good business people, who care for their cows and work to enhance the well-being of the Australian people.

Following the money – where your DA dollars go

/ dairymilkmaid / 2 Comments

da-levies

The fabulous UDV infographic in the last post got me thinking about how the biggest chunk of farmer levy funds are spent – with Dairy Australia.

Just how much does an average farm pay for DA? I did some sums based on figures from the 2016 Australian Dairy In Focus report and, for the average Australian dairy farm producing 1,563,258 litres of milk, the annual DA levy came to $5,523.

Are we getting good value? I asked Dairy Australia some basic questions about what it does and where our money goes. After discussing it amongst themselves for a few weeks, the DA staff were most forthcoming. This is one of the longest posts ever likely to appear on Milk Maid Marian but it’s very useful. Thank you, DA!

1. What are the sources of DA’s funding?

For 2016/17:

Payments from levy payers:                                                               $32.0 million
Matching Federal Government funding for R&D projects:      $20.4 million
Other (Interest on reserves, royalties on IP)                                  $0.7 million

Total                                                                                                   $53.1 million

DA project expenditure is also able to leverage additional State & Federal Government funding by investing jointly in projects, this adds approximately $10 million a year.

2. What percentages of DA’s budget are accounted for by admin, R&D, extension, promotion, and reputation protection? (I’m imagining a pie chart here)

da-funding-sources

3. How does DA set its priorities?

DA follows a process each year to refresh its strategic priorities as part of its rolling three-year plan.

Each year, the starting point is to review the performance of existing/current projects and whether they are achieving what they set out to do. An environmental scan of the operating environment helps to identify any new risks or challenges the industry will need to address.

Once these two steps have been completed, then comes the key measure to the whole process – extensive consultation with representative bodies, Regional Development Programs (RDPs) and farmers. This provides a focus of effort and expenditure on those matters that are not only seen as important, but necessary for a profitable and sustainable sector. Out of this DA is able to clearly define its key investment priorities.

From here, budgets are set and project expenditures are revised to help complete the new plan. Once finalised the plan is presented to industry and Federal Government for ratification.

The underlying, big industry challenge is to profitably grow farm production to fully take advantage of regional potential over the next decade. The current plan retains its focus on building the foundations to support resilience and growth.

Our core priorities are clear and concise: making farm businesses more profitable and competitive; growing people skills and capability; and protecting and promoting our industry.

4. Can you offer a list of the main projects delivered over the last 3 years and those slated for 2017 in R&D, extension, promotion and reputation protection?

The main projects delivered over the last three years are as follows – many of which are ongoing:

  • Regional Development Programs – extension activities to fill the gap left by state governments, discussion groups (now 107 groups up from 80, nationally) and focus farms (a total of 12 nationally).
  • Herd Improvement – Good Bulls Guide, ABV’s, Breeding Indices
  • Dairy Bioscience, Forages – DairyBio (formerly Dairy Futures CRC), hybrid breeding, endophytes
  • Dairy Bioscience, Animal Improvement – DairyBio, tracking genetic progress, Feeding the genes
  • Integrated Feedbase R,D&E – Feeding Pastures for Profit
  • Animal Nutrition & Feed Systems – Feed planning and budgeting, cow nutrition manual, purchasing grain resources, feed additives resources
  • Forage Improvement – Fert$mart, perennial ryegrass management, TopFodder silage management, quality pasture silage booklet
  • Industry Education – NCDE, Young Dairy Network, Picasso Cows, Discover Dairy, Cows Create Careers
  • Attracting & Retaining People – the People in Dairy website and resources like the Employee Starter Kits (ESKi), Stepping Stones, Stepping Up/Stepping Back, Farm Safety Starter Kit
  • Marketing – Foods that Do Good (promoting dairy alongside fruit and vegetables to health professionals), Australian Grand Dairy Awards, Legendairy Capital

Projects underway for this financial year, some of which are ongoing from last year, include:

On-farm

  • Animal health and fertility – Raising awareness and adoption of new Cattle welfare standards (Animal Health & Welfare), improving herd fertility and supporting farmers to phase out calving induction (InCalf), improving mastitis management through new Milk Quality adviser training and better practices at drying off (Countdown), publishing a new edition of the calf rearing manual (Rearing Healthy Calves), improving dairy hygiene to reduce milk price penalties due to bacterial counts (Better Hygiene Better Milk)
  • Genetics and herd improvement – Data Gene (including a centralised data repository), DairyBio
  • Feedbase and animal nutrition – Forage Value Index, DairyBio
  • Farm business management – Dairy Base training, Taking Stock, Standard Chart of Accounts
  • Farm systems and modelling – Precision dairy, virtual fencing
  • Land, water and carbon – Fert$mart, More Profit from Nitrogen (cross sector), Waste to Revenue (cross sector), Phosphorous efficient pastures (cross sector), Stocktake of the Nutrient Loss to Water Risk for the Australian Dairy Industry, feed additives to reduce methane emissions (led by Canadian research institutions), Sustainable Pasture Systems under climate extremes, Profitable Dairying in a Carbon Constrained Future program (Australian Government funded), Cool Cows heat alert service and Cool Cows workshops, Smarter Irrigation for Profit (cross sector) and technical support for industry contributions to the design and implementation of the Murray Darling Basin Plan

Post-farmgate

  • International market support – China, Japan and South East Asia scholarship programs and in market programs across China, Japan, South East Asia and the Middle East
  • Manufacturing innovation and sustainability – Technology Transfer Scheme, Transfer Dairy Fund, Small Dairy Network, Dairy Manufacturers Sustainability Council, Dairy Industry Sustainability Framework
  • Marketing – Legendairy Capital, Foods That Do Good (for health professionals)

5. DA has explained that some programs have been trimmed or cut to meet the expected downturn in income this financial year. What are they?

 Internally, DA has reduced its workforce by about 10% and reduced overhead costs by ~15%. Efforts have been made to preserve core internal programs (RD&E) but most programs have experienced some cuts.

The larger changes have been:

  • Post-farm-gate R&D and educational initiative expenditure has been cut by $3 million per annum.
  • Mass market advertising (TV based advertising) has been cut by $2.5 million per annum.

6. How much has DA spent on post-farmgate R&D over the last three years? Why are farmers’ funds on post-farmgate R&D? How will this change?

Post Farm Gate R&D – Manufacturing Budget

2014/15 – $3,157,500 (DIAL)

2015/16 – $1,293,800 (DIAL)

2016/17 – $414,000 (Supporting Manufacturing Innovation & Sustainability)

Up until the past year, our main investment in post farmgate R&D was core funding for DIAL to produce cultures for cheese companies and also undertake post farm pre-competitive R&D to help companies move up the value chain and improve the return for farmers via milk price.

DIAL was established in 2008 and since that time we were contributing about $3 million/year and most of the processors (MG, Bega, Lion, Parmalat, WCB) were contributing proportional amounts, as were commercial investors so that DIAL had an annual budget of about $7-10m/ year. DIAL also undertook a number of projects to help companies improve operating efficiencies in their factories.

Over the past 2-3 years DA has been scaling back its investment due to a number of factors. 1) with the reduction of co-ops over time, being able to demonstrate to farmers the value of levy dollars into DIAL became more difficult 2) a number of the processing companies had developed strategic alliances and partnerships with overseas R and D organisations or global dairy companies who had very large R and D capability. So the value proposition for DIAL came into question.

After a thorough review it was decided to wind up DIAL. The cultures business was sold to a commercial company already producing cultures and all the remaining IP from DIAL has now been shifted to DA and we will continue to assist processing companies adopt the existing IP.

Following the decision to wind-up DIAL, the strategic direction of the investment as well as the level of investment has changed dramatically. DA’s strategy in this area is now a more targeted post farm gate investment approach focused on technologies ready for adoption rather than idea inception.

We are looking to take commercially mature technologies or practices and see them through to implementation in an Australian context so that our processors and farmers see the value sooner rather than later.

Ultimately it will aim to increase the profitability of the Australian dairy industry by ensuring that our supply chain is keeping pace with global developments in dairy production innovation.

Key focus points of the current Supporting Manufacturing Innovation & Sustainability program:

·         Accelerating technology uptake into the Australian dairy processing sector by supporting commercially-relevant technology assessment and assisting processors to access larger buckets of available government funding sources

·         Enhancing the sustainability of the dairy processing sector by supporting the processors to both track and make progress against industry targets to reduce GHG emissions intensity, consumptive water intensity and waste to landfill. Each of these environmental targets are coupled with clear commercial drivers in that energy, water and waste disposal costs are increasing at a rate which requires rapid industry respond in order to maintain any sort of international advantage in terms of cost of production.

·         Ensuring that the value of current and previous DA research is realized for the benefit of Australian dairy farmers

As part of this new program, Dairy Australia has already completed three pilot-scale technology transfer projects that investigate the economic feasibility of innovative technologies designed to:

a) provide a non-thermal, low energy process to extend the shelf-life of dairy products as well as improve pathways for value addition to whey;

b) enhance the recovery of clean-in-place chemicals and reduce environmental discharge; and

c) optimise spray dryer control and reduce energy use.

Post Farm Gate R&D – Health and Nutrition Research and Science Budget

The Budget has progressively been rolled back in the last few years but is now dominated by the Fractures Trial Commitments.  This funding will continue to contract over the forward estimates as the fractures trial comes to completion.

2014/15 – $584,000

2015/16 – $430,000

2016/17 – $495,000

DA invests in Human Health and Nutrition Research to ensure that dairy nutrition science is strong enough to support industry communication activities designed to improve consumers’, key influencers’ and policy makers’ confidence in dairy foods while highlighting evidence of the benefits of dairy. 

This research has been vital in helping industry to counter the anti-dairy sentiment and fad diets (eg: Paleo) using the most up to date science.  This research also provides real opportunities to enhance the health and nutrition benefits of dairy in the diet with a view to increasing consumer demand for dairy (eg: Fractures Trial working to provide strong scientific evidence that dairy foods help to reduce the risk of fractures in adults).

7. What are the alternatives for farmers to provide DA with feedback?

Aside from contacting DA by phone and email, many of our staff, board directors and RDP extension people are often out in the regions on farm or at various industry events and forums so there are plenty of informal opportunities to approach us face to face.

Farmers are able to provide us with feedback via our stakeholder tracking survey which contacts about 600 farmers twice a year. Farmers are asked directly about their satisfaction with levy investment, what’s working and not working and ideas/advice on how to meet the needs and expectations of farmers.

Also, every three to five years, the Federal Government requires an independent performance review of DA. This process collects feedback from stakeholders about DA’s effectiveness, efficiency, and achieved value for money and return on investment to the industry. Workshops are held in all dairy regions for all levy payers to attend or farmers can email a submission to the agency conducting the review.

Farmers can contact their RDP directly or attend organised events, workshops and local discussion groups. Farmers are also encouraged to join local or industry boards and committees (such as their local RDP).

Or there is also the Australian Dairy Farmers (ADF) and the state dairy farmer organisations which farmers can contact or join to provide feedback which will then be given to DA.

***Agri-political activities or lobbying on behalf of dairy farmers is led by the state dairy farmer organisations – UDV, TFGA, SADA, Dairy Connect, NSW Farmers, QDO and WA Farmers, who are members of the national body, the ADF.

Secret meeting the ultimate irony in quest for transparency and trust

/ dairymilkmaid / 17 Comments
BarnabyMG

Barnaby Joyce and Malcolm Turnbull meeting MG. Pic credit: The Guardian Australia

Tomorrow, Deputy Prime Minister Barnaby Joyce will bring the cream of the dairy community – from retailers and processors through to farmers – together in a symposium to discuss our futures.

It’s acknowledged there is much work to do in order to rebuild trust. One of the measures widely touted – including by Murray Goulburn itself after an earlier chastening at the hands of Minister Joyce and PM Turnbull – has been increased transparency.

Yet tomorrow’s meeting will be:

  • attended by a list of so-far-unknown representatives on an invitation-only basis and;
  • their discussion will be conducted in secret.

No wonder many average dairy farmers outside the inner circle feel excluded and frustrated.

I take my hat off to Barnaby for dragging all the parties together. But this pivotal meeting needs to be an open and honest discussion of what can be done to renew the confidence of Australian dairy farmers in our futures. And if there’s a bully in the room who demanded the doors be closed, it’s time that bully was called out.

Nobody in the Australian dairy supply chain has the right to hold the rest of us to ransom any more. The high moral ground has been well and truly lost.

There are fears that the dairy symposium will be yet another talk-fest over tea and cucumber sandwiches that achieves little other than the fulfillment of a political promise. I’m hoping it will be so much more. If Barnaby Joyce can hold Johnny Depp to account, anything is possible.

UPDATE:

Thank you very much to the Deputy PM’s office for providing this information:

The symposium will be held in Melbourne tomorrow. The Australian Bureau of Agricultural and Resource Economics and Sciences, Dairy Australia and the ACCC’s agriculture commissioner, Mick Keogh will all address the symposium, to be chaired by the Deputy Prime Minister Barnaby Joyce.

A spokeswoman for the Deputy Prime Minister said:

“We have invited key stakeholders from farmer organisations, processors and retailers to a dairy symposium to facilitate industry-led options to address the challenges facing the Australian dairy industry and discuss ways to improve the industry’s prospects going forward.

“The agenda will cover a number of topics including the outlook for the Australian dairy industry and options for improving milk price transparency, strengthening bargaining and restoring industry confidence.

 “The symposium is an opportunity to facilitate an industry-led discussion to better manage risk along the dairy supply chain, including managing the effects of world dairy prices.”

FURTHER UPDATE FROM AUGUST 25
Thanks again to the Deputy PM’s office for a list of RSVPs:

Farmer representative bodies
Australian Dairy Farmers
NSW Farmers
Dairy Connect
Queensland Dairyfarmers’ Organisation
South Australian Dairyfarmers’ Association
Tasmanian Farmers and Graziers Association
United Dairy Farmers of Victoria
Western Australia Farmers
National Farmers’ Federation
ACE Farming Company
Farmer, Willow Grove Gippsland
Farmer, Trafalgar Gippsland
Leppington Pastoral Company
Dairy Farmers Milk Co-operative
Farmer, QLD
Farmer, WA
Farmer, VIC
Farmer, VIC
Farmer, VIC
Farmer, QLD

Processors
Australian Dairy Products Federation
Australian Food and Grocery Council (AFGC)
Bega
Murray Goulburn
Fonterra
Bonlac Supplier Group
Saputo
Norco
Burra Foods
Lion
Parmalat
A2
Premium Milk
Richmond Dairies

Retailers
Coles
Woolworths
ALDI
Metcash

Other
Dairy Australia
Macalister Irrigation District Customer Consultative Committee
KAP President
Sinclair Wilson Accountants Warrnambool
Manning Valley Fresh Group, Taree Collective Bargaining Group NSW
Freedom Foods

Government
Deputy Prime Minister and Minister for Agriculture and Water Resources
Assistant Minister for Rural Health, Federal Member for Lyne
Federal Member for Forrest
Federal Member for Wannon
Senator for Victoria
Victorian Minister for Agriculture
Leader of the Nationals Victoria, Victorian Shadow Minister for Agriculture
Deputy Prime Minister’s Agriculture Industry Advisory Council

Officials
Australian Competition and Consumer Commission
Dairy Food Safety Victoria
Murray Darling Basin Authority
Campaspie Shire Council
Department of Agriculture and Water Resources
Department of Economic, Jobs, Transport and Resources

 

Why the system is broken

/ dairymilkmaid / 17 Comments

The interaction between processors and farmers is bizarre to outsiders. The way it works is this:

Out of a handful of processors in the district, you ask one to collect your milk, although, if you’re unlucky and live somewhere a little remote, you might not actually have a choice at all. We’ll call this processor “your” processor for convenience.

Whichever processor you choose, they tell you what they will pay for your milk on July 1 – sometimes after July 1. This “opening price” is meant to be the lowest anticipated price, the one you can budget on. The only other time the price has fallen below the opening price in the last couple of decades was during the global financial crisis and even then we had a couple of months’ notice.

The price generally goes up along the way from there, though, unless you are one of the very few farmers who gets a fixed price, nothing is actually guaranteed after that.

It all depends on the exchange rate, global commodity prices, the performance of the biggest processor in the market and the success of “your” processor’s particular product mix.

What’s the performance of the biggest processor in the market and the success of your processor’s particular product mix got to do with the amount farmers are paid, you ask? Everything.

And it’s a system that used to work brilliantly. Once upon a time – not too long ago for those sporting the odd grey hair – there were not one but two major dairy co-operatives in the southern states: Bonlac and Murray Goulburn.

Every cent of profit the two co-operatives earned was returned to their farmer-shareholders and, because their whole reason for being was to maximise profits for their farmers, they effectively set a base for the farm-gate milk price.

Neither co-op could get too lazy or arrogant because there was strong competition from the other. Then, disaster struck, as reported by The Age:

“Crucially, Bonlac is processing only 1.6 billion litres of milk. Over the past 10 years, its share of Victorian milk production has declined from about 40 per cent in 1992 to 16 per cent in 2002.”

“Bonlac’s milk plants are running at only 75 per cent of manufacturing capacity. Particularly underused are the factories at Darnum in West Gippsland and Stanhope in northern Victoria.

“Debt, the result of an ambitious expansion into value-adding branded products in the 1990s, is still crippling the company, despite asset sales creating paper profits in the last couple of years, and the repayment of $185 million of debt.”

Now, in the midst of an ambitious expansion into value-adding branded products on the back of a partial listing, MG is in turmoil. Its MD and CFO have resigned and the milk price has collapsed, triggering ASIC and ACCC investigations, at least one class action and a share price meltdown.

Bonlac is long gone and, in the eyes of many farmers, MG has lost the title of reliable pacemaker. The system is broken.

It’s no longer acceptable for dairy leaders to tell farmers to concentrate on their farm businesses and blindly follow their calls for growth. It’s time we actively forged a new era for Australian dairying.

 

Fonterra’s Judith Swales explains Theo’s thoughts on Aussie dairy farmers

/ dairymilkmaid / 9 Comments

Theo Spierings Fonterra chief executive Theo Spierings. Photo: Pat Scala, Sydney Morning Herald

Fonterra is one of the world’s biggest dairy companies with a glittering history. A cooperative in New Zealand, Fonterra is also Australia’s second-largest processor.

Just last year, Fonterra delivered a stellar Kiwi farmgate price far better than anything ever enjoyed by Aussie dairy farmers. Analysts enjoyed debating why Australia could not emulate its success. Today, the co-op is under intense scrutiny from its shareholders.

As I mentioned in the previous post, farmers in New Zealand are doing it very tough this year and Fonterra Australia chalked up losses last year.

Then, last week, Fonterra’s chief executive Theo Spierings​, was quoted in the Sydney Morning Herald  in a story headlined Aussie farmers being overpaid amid global dairy rout, says Fonterra boss.

After quoting Mr Spierings as saying the current price of $5.60kg MS could not be supported, the Sydney Morning Herald reported:

Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn’t based just on the farm-gate price and matched other processors.

“It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” he said.

“But we need to have the conversation now about what the endgame looks like. What is the value being created – what’s the size of the cake? Then we need to have a good debate with farmers … about how are we going to share – how are we going to cut the cake?

The comments raised a lot of questions for a Fonterra Australia supplier like me, especially in respect to the “Bonlac Agreement”, which extends until 2019 and commits Fonterra to paying its Australian suppliers a price that equals or betters the dominant processor.

I put some of those questions to Fonterra Australia and am grateful to managing director, Judith Swales, for answering them.

Judith Swales, Fonterra Australia managing director. Pic source: Australian Dairy Farmer

MMM: Why has Theo chosen to telegraph a change in Fonterra’s dealings with Australian farmers via the media rather than by opening a conversation with farmers?
JS: Theo was commenting on the global dairy situation and its impacts for Australia. He was putting a voice to issues that many in the industry are well aware of. These are difficult issues and shouldn’t be shied away from, and as an industry we need to address them.

MMM: Are there any inaccuracies in the article you would like to correct?
JS: The headline was unfortunate. The main issue to point out is that the problem is not around Australians dairy farmers being overpaid – as stated in the headline – but rather the impact global volatility is having on the sustainability of current dairy pricing in Australia. What’s important, is that we’re sending the right price signals to our farmers to avoid any surprises and so that they can budget for various scenarios.

MMM: Theo appears to cast doubt on the Bonlac agreement that ensures farmgate prices match or better the dominant competitor. Will Fonterra honour that agreement this year?
JS: We remain fully committed to honouring the Bonlac agreement. We are focussed on giving our farmers line of sight to the price we can pay this year as quickly and accurately as we can. The price we pay this year must be sustainable. We do not want to sacrifice investment in our long term strategy, which aims to deliver returns above the Benchmark price, in response to short term, tactical pricing pressures.

MMM: Does Fonterra remain committed to the Bonlac agreement in the medium to long term?
JS: We view the BSC Milk Supply Agreement as a baseline. We always strive to aspire to more – whether it be with our SupportCrew services, price risk management tools or our suppliers receiving the highest milk price (as found in an independent report by Ian Gibb for the 2013/14 season). We expect our relationship with our suppliers to continue to evolve over time.

MMM: “It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” says Theo. Does this mean special pricing that favours long-term contracts and large farms?
JS: Achieving a mechanism for determining milk price that drives behaviours that support the success of Fonterra’s strategy for all suppliers is our aim. This work is always evolving and we will continue work with BSC on this.

MMM: Farmers who supply milk to Fonterra Australia are suppliers rather than shareholders. What does Theo mean by “sharing the cake”?
JS: We have always said that the best dairy industry model is the one where everyone can get a sustainable return. Farmers need to be able to make money, processors need to make money and so do customers, like retailers. And that’s what he means by sharing the cake.

MMM: Does Fonterra continue to have a long term commitment to Australia?
JS: Absolutely we are committed long term to Australia; and our Board continues to voice this commitment. Australia is one of our four key strategic markets for Fonterra. It is a key plank to our global multi-hub strategy, which complements our Retail and Foodservice business. We continue to invest: we are progressing our Beingmate partnership; we have plans to rebuild our cheese plant in Stanhope; and only this week we commissioned a multi-million dollar Beverages plant in Cobden.

Thank you very much, Judith Swales!

Skeletons in the dairy case

/ dairymilkmaid / 15 Comments

CowsDairyTrack

We know we are not perfect, we realise we must do better and we are proud of how far we have come.

Our cows live better lives than they did when I was a girl. Careful breeding has reduced the incidence of mastitis and lameness, while a new understanding of bovine nutrition has reduced the risk of calving trouble and helped us insulate the cows from the impact of both drought and flood. Our first generation of naturally polled (hornless) calves has just been born.

Even so, dairy farmers will one day earn a prime-time feature for all the wrong reasons. It could be someone doing the right thing that looks like the wrong thing: Continue reading →

What it will take to encourage dairy farmers to grow

/ dairymilkmaid / 6 Comments
The much lamented stagnant Australian milk pond

The much lamented stagnant Australian milk pond

Consider this entreaty from the charming Lino Saputo Jr, who is the newish owner of Warrnambool Cheese & Butter:

“…what will it take for the dairy farmers to be optimistic about the dairy industry and investing in their farms and what kinds of programs can we put in place that will assist them.”

“What we are trying to do in Australia is appeal to the dairy farmers and say, ‘Look, we can be a good home for your milk. If you choose to increase your herd size and you’re producing more milk, we will put on the infrastructure to process that milk’.”

Lino’s not alone. Many of the processors including our own co-op, MG, would like to see Australian dairy farmers arise from our slumber and produce more, more, more. Why, the industry even commissioned the Horizon 2020 Report last year to work out why we are so sluggish.

But even a simple dairy farmer can sum it up in two words: Continue reading →

“Bring on the cows” demands a new routine

/ dairymilkmaid / 8 Comments

“Bring on the cows” trumpets The Australian, headlining a story about MG Co-op managing director, Gary Helou. In response to rumours that the co-op might purchase a large Tasmanian dairy farm, Mr Helou reportedly says:

“We are not farmers; MG is a global dairy food processing and milk company, and we will not be buying farms directly; that is not our business,” Helou says adamantly.

“The only way to get extra cows and milk is to up the farm gate price enough that farmers will want to invest (in more cows) themselves. So that’s what I have set out to do, maximise the farm gate price and reduce the cost of processing and the supply chain and then efficient production will follow.”

Here’s the problem: MG is not a global dairy food processing and milk company. It is a co-operative of Australian dairy farmers who are members because they expect MG to, first and foremost, maximise their profitability. Not by investing in a processor (they could just buy ASX shares if that was what it was all about) but by looking after farmers directly.

They don’t just supply MG, it’s not just their MG, farmers ARE MG.

Am I being hopelessly idealistic? I don’t think so. This focus on being a processor has flowed through to the co-operative’s milk price system.

The final milk price only tells half the story. The quoted “average weighted” milk price is skewed to favour farms with flat production curves (mirroring those of the processor) at the cost of farms whose milk supply matches the natural ebb and flow of cow and pasture. For the vast majority of Australian dairy farmers, the way our co-operative pays us is at odds with efficient milk production.

MG must remember what being a cooperative really means before its farmers will be ready to “bring on the cows”.