This morning I woke up to yet another round of what I see as bizarre cheering from the sidelines. Articles like this NZ drought Aus dairy’s boon and headlines of a revival in the fortunes of Australian dairy farmers because our dairy friends over the Tasman are doing it tough
I just don’t get it. If the only way dairy farmers in this country can survive ( let alone prosper) is reliant on climatic disasters in other countries then I say to everyone out there, there is something seriously wrong with the supply chain model for food in this country. I can assure you the Sophie’s Choice model just isn’t working for me and I am not cheering. Survivor remorse is not an easy burden to carry
Farmers so important yet so undervalued by supermarket price wars
We know the model is broken. We know there is far too much power at the top of the supply chain. Hagar Cohen and the team at ABC National Background Briefing opened the lid again on just how evil this is just last week See previous post here
As I mentioned at the bottom of this post I too spoke at length to Hagar. I was initially very wary of being interviewed for the program for a number of reasons which didn’t involve a fear of retribution. However Hagar is an absolute delight and after much consideration agreed. In the end 99.9% of what I had to say hit the cutting room floor but I did do a day’s prep for the interview and spoke to many experts before I decided what I wanted and didn’t want to say. Today I will share with you what I had to say because the supply model is broken and farmers do need to find a completely new way of doing business with the supermarkets and we cant sit around and hope somebody else will save us.
HC – Hagar Cohen ABC National Background Briefing.
What can you tell me about the state of the dairy industry and the domestic milk market in NSW?
LS – Lynne Strong
It has been estimate farm exits are currently running at about 40 % per year. 85% of milk in NSW is sold as fresh white drinking milk so there is a heavy reliance on supermarket contracts. Approximately 45% of NSW milk is sold through supermarkets as private label or homebrand milk and the supermarkets are the ‘price makers’ in this market.
As the largest players in the market, the supermarkets have used fresh milk discounting to increase sales in other sectors of their supermarkets. And it’s working Coles profits are up 16% (1.356Billion $ pre-tax earnings)
This is about all about the whole supply chain – we are all in this together we need each other. The milk price wars are hurting everybody down the supply chain. It’s not just the farmers who are being squeezed
HC – How have the price wars affected your business (bottom line, and emotional/ psychological impact)
LS- One of the big issues now is the capacity to recover from a disaster. Take the recent floods in the north for example. These dairy farmers are more impacted than they would be normally because of the lower milk prices they are receiving. They don’t have the financial capacity to recover from the continual flooding. They are now desperately asking the State government to help them finance the recovery. It has now become a cost to the public.
This region has had similar and severe impact from recent very sharp drought through spring and summer where farms and farm business did not have available cash surplus to feed and maintain their cows.
On top of this feed prices are up and like other farmers we had to extend our overdraft and take out loans to buy in extra feed. In our case the recent drought has meant hand feeding over 1000 cows
In fact it cost us 30% more this year to feed our cows through that period in comparison to the same time last year. Wages went up 20% I it took a lot of time to hand feed these cows.
The industry is extremely exposed at the moment. Many farms have had to lay off staff. This is increasing workload on those who stay is increasing physical and emotional stress. Repairs and maintenance are not being done; Environmental stewardship spending is falling by the wayside as farms have moved into survival mode
HC – How has your relationship with the processor changed since the milk price wars began (ability to re-negotiate contracts, quantity of milk produced, farm gate price, being paid retrospectively)
LS – I know there have been some very tense conversations between farmers and their processors. Like most Lion suppliers we have lost over 30% of our contract volume since the milk price wars have started. Our milk price per litre has dropped. There is huge uncertainty around price and what next year is going to be like. It’s hard for my son, my neighbours and others I have spoken to in the industry to plan for even one year down track.
We have had a lot of budget conversations and sleepless nights and we are not alone. This is very destabilising when you want to invest in on farm improvements for our cows and our landscapes and it’s has been very hard on our staff
HC- How do you feel about the ACCC inquiry, and how its outcomes may (or may not) change the dairy industry.
LS- The ACCC inquiry terms of reference have not yet defined. From a dairy industry perspective . The dairy industry moved from a regulated market to a deregulated market in 2000. We do not want to go back to a regulated market. However we are now in a deregulated market where all the power is at the top of the value chain.
This is not the how a deregulated market should work and it’s not working. This farmer/ milk processor/ supermarket relationship is a logical one and should not be abused
There is room for symbiosis here that provides for the sustainability of farm businesses, processors and the supermarkets while still providing locally produced, high quality product at affordable prices for the consumer with minimal food miles accrued.
But realistically the ACCC’s customer is the consumer. I am consumer too. It is however imperative that the ACCC considers the long- term implications of its recommendations and rulings on consumers. We know consumers want fresh, healthy cheap Australia produce and we are proud to be supplying 50,000 Australia’s with this affordable nutritious cocktail that is milk
But there is a difference between affordable or cheap milk and sustainable farm gate milk pricing. If the status quo remains I am confident no-one will win. Realistically after all milk is a staple it’s always been affordable
Increasing urbanisation in Australia has resulted in farmers and consumers been further apart than ever before. Sadly we have lost sight of each other. Its no-one’s fault it’s just the way Australian has evolved.
And it’s not just consumers, retailers and processors too have lost sight of on farm realities. It’s time to reverse this trend
So we need a new supply model where we can all work together and have a mutual understanding of the challenges and constraints.
Dairy Connect is working to do this in NSW for dairy farmers. As part of my Bob Medal Landcare win I am working with NSW Farmers Association to create a model so all Australians farmers can learn to engage with and have an active role in the way the supply chain operates
For the dairy industry we need to look at what sort of dairy industry do we want.
What sort of dairy industry do we need?
My vision for the future is an equitable supply chain for everyone. In an ideal world the outcome of the ACCC finding would be a mandatory code of conduct that protects smaller businesses in the value chain and provides equity for everyone
One thought on “What sort of dairy industry do we want”
It’s time farmers stopped borrowing for the same old, same old. Rural debt has climbed exponentially as the rationalization takes place. Time to turn borrowings into something that ensures the long term viability of the industry and not just individual farmers. The industry needs to integrate vertically. Produce, make and sell. At the moment, for almost all rural commodities, post production is outsourced. Time to ‘bring it all home’.
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