Theo was too right…


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.



“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.

The perfect farmer’s body

What does the perfect body look like? Not mine, that’s for sure! Yesterday, I was reminded just how bad my genes are for farming. Allergies run on both sides of my family and the worst irritant of all looks like this:

Yorkshire fog grass

Yorkshire fog grass: one UK expat we could do without!

I’m told it’s called “fog” grass because the pollen is released in such huge quantities, it makes everything go misty. Dynamite! Yesterday, I had to wander through thigh-high forests of it to get the dam siphon running again. My scalp, eyes, nose, mouth and arms are all still desperately itchy 15 hours later.

The cows don’t like it either. Fog grass is covered in thick velvety “fur” that understandably is most unpalatable.

Thankfully, we have a lot less of this hideous grass nowdays. It was everywhere when I was a girl but much better grazing management has seen it restricted to untouched pockets of dampness (like the dam wall).

Grass management is a big deal for Australian dairy farmers because it is the greatest predictor of profitability. We count leaves, we estimate the tonnes of pasture in paddocks and aim for the magic nexus of quality and quantity. Somehow, it’s reassuring to know that nothing beats the simplicity of grazing grass for high performance dairy farming, even in 2012.

“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.

Dining on data is good for the bottom (line)

Farm planning meeting

Farm management meeting

Depending on how you look at it, dairy farmers are very trusting, natural exhibitionists or visionaries. I say this because I have always been amazed by how readily we share the most confidential of our information with our counterparts – right down to the profitability of our farms per litre, hectare and even per cow.

I have just joined the ranks of these exhibitionists by submitting our farm’s data to Frank Tyndall, who oversees a project called Tracker that benchmarks dairy farms across all sorts of productivity measures.

The results offer an incredible amount of information that require some very thoughtful interpretation. Great fodder for discussion with our farm consultant, Matt Harms.

Unsurprisingly, we have achieved a lowly rank. Our dryland (or “rain-fed” if you’re feeling optimistic) farm is being compared to those in the Macallister Irrigation District (MID), where water when you need it is pretty much assured. We have just come out of an impossibly wet year that has depressed production in the growing season and, now, the dry has set in.

We may end up winning the wooden spoon but I’m not concerned. The race here is to a greater discipline when it comes to farm management, which should reap efficiency dividends and make our farm more resilient.