Dairy farmers knew deregulation was coming. Were they prepared for it?

I suspect our cows had a few opinions about the whole business too. Lots to think about on the hill at Clover Hill

I’ve spent the past few months researching the history of dairy co-operatives, particularly the Jamberoo Dairy Factory and the organisations that eventually became Australian Co-operative Foods.

Jan Todd’s Milk for the Metropolis, published in 1994, has been a fascinating resource. Towards the end of the book, Todd describes how Australian Co-operative Foods (ACF) was preparing for an increasingly competitive market. By 1993, its directors were examining the financial and organisational changes required to operate in a deregulated environment.

Reading about those preparations more than thirty years later has brought back memories of what happened on our own dairy farm.

Farmers knew deregulation was coming. The arguments had been going on for years, and many were determined to fight it. The partners on our farm certainly were. They had invested their lives and their money in a business that operated within a regulated system, and they saw little reason to welcome changes that threatened their livelihood.

Did change happen with farmers or around them?

Farmers are well know to err on the conservative, particularly when it comes to decisions that affect their financial security. Yet some of the most innovative and resourceful people I’ve known have been farmers. Give them an opportunity they understand, and they’ll find extraordinary ways to pursue it.

That contradiction interests me because it says something about how we approach change in agriculture.

For decades, governments regulated the marketing of milk. They established prices for drinking milk and determined which producers could supply particular markets. Farmers borrowed money, invested in infrastructure, built dairy herds and planned their businesses around those arrangements.

The prospect of deregulation challenged many of the assumptions on which those decisions had been made.

By the early 1990s, the industry’s major organisations were examining what deregulation would mean for their operations. There were consultants, feasibility studies, financial projections, merger discussions and proposals for new ownership arrangements.

Todd’s account shows how seriously Australian Co-operative Foods was examining its future. The directors understood that changes in regulation, competition and access to capital would have significant consequences for the business.

I’d love to know how those conversations translated into preparation on individual dairy farms.

The partners on our farm spent a great deal of energy opposing deregulation. Looking back, I wonder what might have happened if someone had helped us devote some of that energy to examining the possible outcomes and deciding how we wanted to respond.

What would our financial position look like without regulated milk prices? Could we reduce production costs? Would increasing herd size improve profitability, or expose us to greater financial risk? What other options were available? What information would help us make those decisions?

These were conversations that deserved time, independent advice and the opportunity to explore different scenarios with people who understood the realities of running a dairy farm.

A dairy farmer cannot change direction as quickly as a government can change policy. Milking sheds, machinery, farm improvements and livestock represent substantial investments. Loans have to be serviced. Families have to live. Decisions about breeding, infrastructure and production can have consequences for many years.

I wonder how much attention agricultural leaders gave to understanding the people they were asking to adapt.

When farmers resist change, it helps to understand what concerns them. Sometimes they have good reasons. Sometimes their assumptions deserve challenging. Sometimes they have spent so long defending the arrangements they know that they have had little opportunity to imagine an alternative.

That is where leadership and engagement become so important.

I have spent much of my professional life bringing people together to explore difficult questions, and I have seen what happens when they are given the opportunity to contribute rather than being presented with decisions that have already been made.

People bring knowledge that rarely appears in a consultant’s report. They understand their own circumstances, their communities and the practical consequences of decisions. They also bring fears, frustrations, prejudices and assumptions. All of those belong in the conversation.

The seven years between the planning Todd describes in 1993 and dairy deregulation on 1 July 2000 provide an interesting period to exam

Dear readers

When dairy deregulation arrived on 1 July 2000, NSW farmgate milk prices fell from around 37 cents a litre to approximately 28 cents (Note these figures are industry averages). A reduction of almost a quarter. Add a drought to that equation and you have a pretty powerful incentive to reconsider how you run a dairy farm.

And reconsider we did!

We went from milking 80 cows twice a day to 400, three times a day. We leased another farm, hired a consultant, conducted research trials with Sydney University, attended conferences and made some enormous changes to the way we operated.

For a farming family whose partners had fought deregulation, we certainly became enthusiastic students of change once it was upon us.

I suspect our cows had a few opinions about the whole business too. Particularly the three-times-a-day milking.

 

Caging the 900 pound gorilla

Everyone who reads my blog (including Coles) knows that since milk went down, down, down to $1 per litre at Coles I have done a lot of Coles bashing. After 30 years in the very switched on world of retail pharmacy I am well aware that it is not smart business to bash your customer and with 80% market share the Australian supermarket duopoly are indeed a very important retail customer in the farm to glass story.

So why have I chosen to ignore this wise advice. It was Mick Keogh of the Australian Farm Institute who first introduced the term, “900 pound gorilla”, in reference to the dominance of the two major supermarket chains.

Furthering the analogy, he said for farmers, dealing with the supermarkets was like being hugged by a gorilla; the initial embrace may be warm and comforting but over time the oxygen gets squeezed out. GorillaHug

That’s just how I feel like my life blood is being squeezed out. Like most dairy farmers I feel helpless, undervalued and in the current climate of relentless supermarket discounting of milk it’s so hard to feel positive about the future for NSW and Queensland dairy farmers and indeed the ongoing availability of fresh milk in both of these states

Should I be feeling this way?

Yesterday one of the speakers at the Dairy Innovators Forum in Queensland said if we have 134,000 farms in Australia we have 134,000 CEO’s and 134,000 CFO’s and its time we got together and found our inner strength and found out just how powerful we could be if we all worked together.

So what’s stopping us I keep asking myself?  Highly frustrating to me the Australian dairy industry just seems to be sitting in a rowing boat waiting for the wind to change in its favour rather than determining the place they want to be and buying the biggest and most powerful motor to take us there.

So is the ACCC announcement that they are launching an investigation into Coles and Woolworths over possible misuse of their market power and “unconscionable conduct”  going to help save the dairy farmers? Is the ACCC a toothless tiger no more? Will they cage the 900 pound gorilla?

Let’s have a look at some of what Mick Keogh for the Australian Farm Institute has to say on this announcement here

The recent announcement by ACCC head Rod Sims of the supermarket investigation gained wide publicity (see here, here and here ).  The response from the major supermarkets has been tinged with surprise and indignation (see here and here ).

When both major Australian supermarkets are listed amongst the largest retailers in the world despite Australia’s relatively small population, it gets a bit hard to argue that their market share is actually less than everyone thinks!

Unfortunately for the major retailers, however, their responses to the ACCC announcement directly contradict their own actions and advertising, so are unlikely to garner much public support or sympathy.

By demonstrating the reality of their market power through, for example, unilaterally declaring that from now on the price of a major staple such as milk will be $1 per litre or the price of bread will be $1 per loaf the major retailers have sent a very clear message to consumers that they have the power to set the price of goods they retail, even though it is clear that the major retailers don’t actually produce those goods.

Complex explanations that the retailers have funded these price cuts from their own businesses and not as a result of lower prices being paid to suppliers simply don’t sound believable in the face of evidence that dairy farmers are leaving the industry and dairy processors are reporting major operating losses while supermarkets report major increases in profits.

No amount of slick advertising based on images of retailers and their moleskin and Akubra-clad celebrity spokespersons standing arm in arm with smiling farmers will be sufficient to contradict the raw display of market power that is repeatedly demonstrated to consumers every week, when they pick up their $1 a litre milk or the $1 loaf of bread.

It doesn’t take a great deal of thought before consumers make the connection between the extent of the market power that major retailers have demonstrated, and the potential to misuse that market power unless there is adequate regulation and transparency. When reports emerge from the ACCC that 50 suppliers have come forward with complaints this hardly comes as a great surprise to consumers.

Ultimately, the major retailers have promoted their market power as a major benefit for consumers, so to then try and claim that in fact they don’t have that power, and even if they did have it they would never misuse it is simply not likely to pass the “smell test” in the court of public opinion.

The Conversation also had some very interesting commentary here and here. Let me share some of what resonated with me

The Australian Competition and Consumer Commission (ACCC) announced last week that it is investigating claims that Coles and Woolworths are bullying suppliers. The issue is serious, but the ACCC investigation only treats the symptom and diverts attention away from the real cause of the problem: supermarket power.

That’s right this is all about power and it’s time for the dairy farmers to use their power and get serious and smart about how we deal with the supermarkets. The good news it is starting to happen. Tomorrow’s post will share with you some of what is happening in NSW

In the meantime check this out from clever young full-time vet student and part- time dairy farmer Cassie MacDonald. Cassie has created her own infographic to counter the half truths in the Coles version. Cassie says “Coles it’s clear you don’t give a buck” The video is averaging 1500 views and it’s pretty impressive

 

Update: Cassie Macdonald has not had 50% more hits on her video in 3 days than Coles have in 2 months

Cassie Macdonald update