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

“MG understands dairy farming profitably…will be very challenging…”

Yesterday, Murray Goulburn Co-op, which buys and processes our milk announced how much we will be paid from next week. It equates to roughly 33 cents per litre.

In the letter announcing the farm-gate milk price, Murray Goulburn CEO, Gary Helou, writes:

“MG understands that dairy farming profitably at these opening and forecast prices will be very challenging
and we will do everything possible to increase farmgate returns in the short and long term.”

I appreciate Mr Helou’s frankness but, to be honest, it sent shivers up my spine. It reminded me of 2009, when it was clear that no matter how long, hard or smart we worked, we would lose money. In fact, the average dairy farmer took on $220,000 extra debt. This year, it looks like we’ll lose about 3 cents for every litre of milk we supply. Ironically, that could mean we try to produce more milk in an attempt to offset our fixed costs or a lot less milk if we instead decide to sell cows. It will also mean I spend more time trying to earn an off-farm income to reduce the impact on our family.

This is essentially what makes dairy farming a very tricky business: we have one product that we sell to one customer at a price they set. No wonder we’re a resourceful bunch.