Bad moon rising?

NoEvil

Hear no evil Pic credit: Apartline.de

It’s no secret, the last couple of years on the farm have been bloody tough. The 2015 drought cut deep here, only to be followed by the dairy debacle of 2016. Now the historic agreement to sell Australia’s last big co-op has us in unchartered waters.

We just need a bit of a breather to recover and keep our heads above water.

During the last two years, we’ve closed down spending as much as possible. We haven’t sacrificed feeding cows or looking after our soils but, beyond that, if it could wait, it did.

It means we have some maintenance to catch up on, especially the farm laneways that the cows use to get to and from their paddocks. Maintaining tracks is expensive and we have the equivalent of a very good year’s profit to make up as well as new debts to repay. It hasn’t been a very good year yet.

So, you can imagine how it felt when I heard Freshagenda’s revised forecast for next financial year, which basically said milk prices are headed down again. Not good. Demoralised and, honestly, rather cranky.

But is there really anything to worry about?

After all, a year (or even half of one) is a long time in dairy commodity pricing. Freshagenda notes there are plenty of variables, like exchange rates, the weather in New Zealand and even the Russian ban on dairy products, that can all still make a big difference to the outcome.

This farmer’s left wondering whether it’s safe to let the moths out of the cheque book for that much needed maintenance.

If I spend too much, there might not be enough left in the kitty for another tight year. If I keep the hatches battened down, the tracks will cost a fortune to bring back to square one in another two years’ time.

While all of that is a big deal for me, others argue there’s much more at stake. There’s the psychological impact on farmers for a start.

If social media is any guide, plenty of farmers have had a gutful of industry turmoil and tight times. Some of them will curl up into a little ball, some will grin and bear it, while others will simply walk away.

I’ve heard farmers suggest it’s irresponsible to publish something like that when the industry is on a knife edge. Others worry that the processors will use commentary like this to jawbone the farmgate milk price down.

Either way, they argue, it could help to dampen milk production for another year, reducing Australia’s ability to be an efficient, reliable exporter.

With all this in mind, it’s not surprising Freshagenda has copped a bit of flack. Its founding couple, Jo Bills and Steve Spencer, shouldn’t be surprised. Dairy Australia famously stopped issuing similar forecasts after similar blowback.

Asked for comment by Milk Maid Marian, DA explained its approach this way:

“Dairy Australia exists to provide our farmer stakeholders with the most accurate and up to date information so they can make informed decisions around their business practices.”

“Our role in this space is to provide an unbiased view on current market trends and drivers, through publications like the Situation and Outlook report.

“Milk pricing varies greatly from processor to processor and farm business to farm business. Our approach is to provide the information and insights that farmers can apply to their own context, and draw much more meaningful conclusions than an industry ‘average’ price.

“DA moved away from providing an exact prediction on milk pricing for a number of reasons, these include:

–          The risk of eroding competition for milk and unduly influencing market decisions made by processors.

–          The industry is now in an environment where there is significant variation in processor prices meaning that no price will ever apply to everyone.  This has not always been the case.

–          Milk pricing is extremely complex and there are too many variables for DA to confidently predict a single/universal price.”

It provides all the ingredients for a powerful argument against the proposed $2 million milk price index that seems to have gone very quiet.

On the other hand, Freshagenda is not the only one pointing to a softening in global dairy commodity prices. A quick Googling will reveal analysts from around the world coming to the same conclusion that this cycle is already turning. The processors all know it and can point to any amount of evidence for a lower new season’s price if they want.

Freshagenda has simply put that into context for Australians.

Yes, they’ve also put a number on it, or “numbers” I should say as they’ve actually offered a fairly broad price range that comes with the expected caveats regarding changing conditions.

When the dairy debacle of 2016 unfolded, it caught farmers by surprise. Many asked why they weren’t warned. We can’t have it both ways.

The question is: would you want to know if there’s a bad moon rising? At spreadsheet-time, yes, I would.

 

 

Biosecurity dairy debacle: what farmers need to know

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/

 

Following the money – where your DA dollars go

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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.

Following the money – where farmer levies go

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Every farmer knows that each time we sell a litre of milk or send a cow to market, we pay some sort of compulsory levy or fee. But where does that money go and what does it do for us?

Well, the UDV has created a very lovely infographic to follow the money as it trickles down to a plethora of bodies. The biggie is Dairy Australia but there are plenty of others less familiar to the average milk maid.

The infographic is so chock-a-block full of useful information that it simply doesn’t fit on the page but I have lopped the right hand side off so you can get the gist of it. To see the whole thing, click on the link below.

dairyfarmer-representation-and-dairy-farm-statutory-payments-2016

The front follows the money and the second page explains our convoluted system of representation.

Bon appétit! For the next course, Milk Maid Marian will serve a short but sweet distillation of how DA spends our precious funds.

Dairy Australia directors need to roll up their sleeves

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It’s sad to say but, clearly, Dairy Australia is scared of farmers.

I returned from a few hours in the paddocks to find screens and screens full of comments on Twitter from fellow farmers on the leaked DA email above.

It’s been explosive because DA is accused of protecting its own turf first rather than being transparent with and accountable to the farmers it serves and who pay compulsory levies to fund its operation.

Contrary to Barnaby Joyce’s wishful pronouncements, farmers are still in a world of pain and the DA levies amount to tens of thousands of dollars per year for many of us. It’s no surprise then, that the way DA spends farmer funds is highly scrutinised.

I’m a believer in the work DA does. The knowledge I’ve gained from DA programs has made an enormous difference to our farm and we’d be a lot worse off without it. But not everyone agrees.

Some farmers are even pushing hard for a halt to the DA levy, irate that the opportunity for a routine poll on whether the levy should be maintained, changed or scrapped altogether was passed up by a committee.

That committee had farmer members and the DA board has farmer members, too. You might think that something run by farmers for farmers would be great at communicating with farmers, but it’s not.

I’m embarrassed to say that, until I Googled them, I couldn’t even recall the names of DA’s long-standing farmer directors. And there are only one or two visible DA HQ staffers on Twitter. While DA maintains its silence, it’s hard to understand how it can accuse upset farmers of spreading misinformation.

It’s time DA’s farmer directors rolled up their shirt sleeves and had frank conversations right from the start. There was a time we had a director on Twitter who knew how to take the sting out of almost any issue by being ready to chat, quick to crack a joke and unfailingly real.

DA can never control the message but, if it wants farmer respect and understanding, it must first join the conversation.

Theo was too right…

keep-calm-let-s-cut-the-cake-and-eat-it

Here’s an unpalatable truth: when Fonterra head Theo Spierings said the milk price was unsustainable back in August last year, he was right. He also said the way milk prices are set needs to change. Correct again. Then he started talking about the need for, “a good debate with farmers … about how are we going to share – how are we going to cut the cake.”.  That’s what really matters right now.

At the time, Fonterra Australia head, Judith Swales responded to Milk Maid Marian’s request to clarify what Theo had meant by “sharing the cake” and said:

“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.”

It’s hard to disagree with that sentiment. The problem is that we’ve learnt one more lesson in the last couple of months: if you’re stranded on a desert island with a hungry gorilla and a small cake, you’re in very big trouble indeed.

This post is not intended as an attack on Fonterra. After all, things are no better at Murray Goulburn. The reality is when there are thousands of small businesses selling a highly perishable product to a handful of large corporates and multinationals, the playing field is anything but even.

Just 12 months before Theo was talking about cake, the majority owner of Warrnambool Cheese and Butter, Lino Saputo, was quoted as wondering:

“…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.”

At the time, I summarised my answer as “reliable profitability”. I posted the charts below showing just how far dairy farmers’ terms of trade had slipped and the wild fluctuations in profitability.

DairyTermsTrade

DairyBusinessProfit

“Productivity in the Australian Dairy Sector”, ABARES, September 2014

There’s one more factor I missed: confidence.

Writing for the latest edition of The Australian Dairyfarmer magazine, Dairy Australia managing director Ian Halliday notes that :

“In 2015, confidence among dairy farmers was at 75 per cent. In February this year, confidence had fallen to 65 per cent reflecting the dry seasonal conditions and also what milk prices were looking like for 2016-17 when considering the global price outlook.”

“Following the sudden milk price cuts in late April, which affected up to 65 per cent of all dairy farmers, we conducted another survey to get an understanding of changes in farmer confidence. This sample, although smaller, indicated confidence nationally had droppedd to 45 per cent.”

I’m willing to bet that confidence has fallen to historic lows after the Murray Goulburn opening price announcement.

What’s needed now is:

  • Transparency
  • Risk management strategies to deal with volatility
  • A more level playing field that provides farmers with real choices when dealing with processors.

These are the ingredients of reliable profitability and, without it, we’ll be continually wrestling the gorillas for the crumbs of a perpetually shrinking cake.