Dairy industrial action

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Day shift conditions are far superior to those at night

In a wave of industrial unrest over the weekend, dairy cows at Milk Maid Marian Inc began staging sit ins. On Saturday afternoon, the herd voted not to go into the night paddock until entitlements for the evening shift matched those enjoyed during the day.

An apology and explanation from the employer that the limited volume of dam water could only provide for daytime millet and turnips was enough to move the cows through the gate. But once again faced with the stark reality of honey-coloured pasture, the milkers voted unanimously to reinstate their stop work action.

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“You have got to be joking!” was the theme of the stop work meeting

After threatening to blockade the flow of milk, the cows entered into a fresh round of negotiations with the farmer on Monday.

The new remuneration package includes 6kg of grain pellets during milk harvesting, three hours of access to turnips following the morning milking, five hours of access to freshly irrigated shirohie millet and nightly silage to offset the honey pasture.

Addressing the herd, union secretary Pearlie Girlie said the industrial action was a wake-up call for the dairy sector.

“We understand and appreciate that the dairy sector is facing headwinds,” she said, “but weather conditions are no excuse to cut the living conditions of those at the coal face to unworkable levels.”

“All parties in the supply chain need to bear their fair share of the risk. In fact, those with the deepest pockets have the greatest responsibility to shoulder the load.

“Those who choose to ignore this fundamental truth will see production fall accordingly.”

Do we care whether Australia makes less milk?

Could Australia be running out of milk? Dairy identity Darryl Cardona told the senate inquiry that we could be importing milk in two years. according to media reports. Wondering if this really could be possible and what difference it would make, I turned to Rabobank senior dairy analyst, Michael Harvey, for insight and am really grateful for his guest post below. Thanks Michael!

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Michael Harvey, Rabobank

The Australian dairy industry is staring down the barrel of one of its largest annual falls in milk production and would follow a 2% decline last season. This season has begun with three consecutive months of double-digit falls and is forecast by commentators (including Rabobank) to finish the season down between 7-10%. One of the country’s worst droughts in history was the catalyst for a contraction in supply of 8% back in 2002/03 – a clear indication of how difficult it is right now.

The collapse in milk production is not surprising given the challenges being endured on-farm. Some producers are exiting the industry and the producers who remain are making strategic decision to quickly bring down their breakeven levels through reducing herds and cutting costs. Just to make matters worse, seasonal conditions present challenges for the second consecutive season (but for complete opposite reasons). Some dairying regions are faring better with seasonal conditions and less global market impact on milk prices – the steepest declines in production are from across the southern export regions.

Losing supply is risky for processors
So, what are the implications for the industry beyond the farmgate when facing a collapse in milk supply? For processors, losing a large volume of milk supply is risky business.

A loss of milk can have a material impact on profitability. This is through reduced efficiencies and higher overhead costs associated with running processing plants at less-than-optimal rates. The financial impact will depending on how much milk is lost, where from, and what the manufacturing footprint is to be able to spread the impact.

As has been well publicised, there is active recruiting of milk supply across southern Australia leaving Murray Goulburn the most exposed processor. For a processor the size of Murray Goulburn, a short-term loss of milk supply can be managed. However, losing a large quantity of milk in a rising price environment is not ideal. Furthermore, a more permanent loss of milk supply may require a review and resize of its manufacturing footprint (existing and planned) to meet the new supply realities.

Will Australia remain self-sufficient for milk?
Looking more widely, given the scope of the reduction this season, concerns are being raised at the ability of Australia to remain self-sufficient in milk and dairy. Entering this season, Australia was a net exporter of dairy and sold around 3.5 billion litres of milk (in liquid milk equivalents) into the global market.

But Australia is actively engaged in global trade and is an open economy. In the same year, Australia imported over 1 billion litres (in liquid milk equivalent) of dairy products and ingredients. A large portion of this was either cheese or butter for a use across retail, industrial and foodservice. Australia also imports ingredients that are in short supply locally. Examples include whey, casein and lactose for production of nutritional powders.

For most dairy processors, a drop in supply will mean an immediate reduction in exports because the domestic market delivers higher and more stable returns and supply is tied to contracts.  If Australia’s milk supply falls 10% this season that would equate to a loss of over 1 billion litres in just two seasons – a worrying trend for the entire industry.

Long-term a continued fall would trigger a spike in imports of more cheese, butter and ingredients to meet shortfalls and cover the loss of milk as processors focus on utilising local milk in the most profitable streams. But Australia would need to lose a lot more milk before needing to import liquid milk from New Zealand to meet the local consumer market for fresh dairy products.

What the future holds
So what can we expect moving forward? Firstly, better seasonal conditions over the remainder of the season would help to stem the loss of milk. Secondly, there are positive signs in global markets which have seen some improvement in farm-gate returns. Rabobank is confident of a sustained price recovery which will flow back to the farm gate. While it might be too late to have a more material impact of farmer margins this season, 2017/18 is shaping up well and should see a return to profitability on-farm. This would go a long way in stopping further bleeding of milk supply.

There is a risk for the whole of industry that Australia’s milk pool will remain stagnant or shrink further. Collectively the industry needs to re-ignite profitable milk supply growth. Australia needs at least 1% growth in milk production each year just to meet growing, albeit modestly, domestic market requirements.

Incentivising milk supply long-term to maximise help existing and planned processing capacity is more demanding. Restoring confidence and appetite for investment at the farm gate, which history shows for Australia, is an element difficult to attain and will require a sustained period of farmer profitability.

Without more milk supply, Australia will become less export focused, reducing its commitment to fast-growing global dairy markets, and potentially importing more ‘milk’.

When Old Macdonald retires, who should own the farm?

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Him (distracted by his new iPhone 6): A litre of milk, please.
Me: That’s $1.20, thanks.
Him: $1.20? No way, I can’t afford that. We go through four litres of milk a week. I’ll get it at $1.00 down the road.
Me: But $1.00 isn’t enough!
Him (wanders off, still looking at the iPhone)

Me (in 10 years): I’m tired of trying to make ends meet. I’m retiring.
Him (looks up from new iPhone 60): You’re selling the farm?
Me: Yep. Got a good price from a guy who says he can see the farm’s potential. I’m finally able to retire.
Him: But where will I get my milk from?
Me: The new owner, I guess.
Him: But he might sell it to someone else!
Me: Just get it from down the road then, like usual.
Him: But what if they decide to retire as well and sell it to this bloke?
Me: Relax. Not everyone’s going to sell to the same bloke.
Him (waving arms, stamping feet): But what if they do? It’s not fair. You are not to sell to him. This is MY milk. I demand food SE-CU-RI-TY!!!
Me: Maybe you could just offer him $1.20 for it?

Banning foreign ownership of Australian farms sounds nice in theory but it’s just not fair. Not to the farmers who want a fair price for their land and not to international investors who appreciate the true value of our farms.

There are two main arguments against foreign ownership of farms: ethical practices and food security.

Ethical practices are important and Australia has stringent rules governing almost every aspect of farm operations. In 2014, I wrote about my concerns regarding an overseas firm publicly railing against those laws but, even so, am dismayed to see Milk Maid Marian used as a rationale for preventing any foreign ownership. Farming well, no matter who by, should be supported. Farming badly, no matter who by, deserves concern.

Food security, on the other hand, is a privilege, not a right. Australians – among the globe’s wealthiest people – are in a great position to compete for our share of the world’s abundance of food. And there is no place for a peasant underclass here in Australia.

It’s dazzlingly hypocritical to gleefully buy cheap, high quality electronics from poor nations on one hand but refuse to allow them to buy affordable, high quality food from us in return. If Aussies really want food security, they need to start putting their money where their mouths are.

 

The new golden child in Australian dairy: corporate farming

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Australian dairy farmers have long been compared to our Kiwi big sisters.

You might imagine the comparisons would highlight the resilience of Aussie farmers who cope with much tougher climates (three weeks with scant rainfall is considered a drought in NZ) and less bountiful soils. But, sadly, no, it’s generally been along the lines of a disappointed parent.

“If only Australian dairy farmers were more like the Kiwis”.

But, as the cost of producing a litre of milk in the naturally blessed New Zealand has risen close to that of Australia, big sister has lost some of her charm. The new golden child is Big Brother: the corporate farmer.

The corporate farm is very attractive to everyone who describes themselves as “in agribusiness”. It borrows big, spends big, supplies big and is built on the promise of rivers of white gold that can be tapped by anyone with a spare dollar (whether or not they have an aversion to muddy boots). Freed from the constraints of traditional farming, they push the system hard for maximum shareholder return.

And, if it crashes, well, what the heck? It was worth a crack. The carcass is licked clean, everyone dusts themselves off and goes back to what they were doing before, digging up iron ore or whatever it takes to fund a spin on the roulette wheel.

Should we be concerned? Honestly, I’m not sure. If large dairy farms are held by patient investors, they can tick all the right boxes, since cow care, environmental responsibility and the welfare of workers all make business sense in the long term.

I just hope those lured by all the hype remember that dairy farming is a complex, volatile business and the returns may be neither instant or constant for, if it’s all about turning a quick buck, things can turn ugly very quickly indeed.

How to grow Aussie dairy: fixed price

The refusal of Australian farmers to saddle up our cows and grow, grow, grow like our wonderful Kiwi cousins has been much lamented. In a recent blog about the subject, I suggested that we simply needed reliable profitability to do the same and followed it up with Ian Macallan’s integration vision.

In this second follow-up post, Fonterra dairy ingredients trader Scott Briggs answered a few questions about its innovative Fixed Base Milk Price, which promises to iron out some of the volatility in the price we get for our milk. Continue reading

How to grow Aussie dairy: vertical and horizontal integration

In last week’s post about what it will take to encourage dairy farmers to grow, I promised to follow up with some ideas. The first is a guest post from Ian Macallan, a project strategist and business architect who has operated in the Asia Pacific for over 30 years across a number of industries including dairy.

Whilst 97 per cent of Australian dairy farms are family-owned, there are smatterings of “corporate farming” that bring together large parcels of land and cows.

If left unchecked, this type of pure farm aggregation could swing to the extreme of looking like feudal farming, leaving no capacity for family dairy farming. These corporate farms are also still vulnerable to milk price fluctuations.
Continue reading