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Friday, June 16, 2017
Over the past week, we have seen several milk supply companies announce their opening milk prices for 2017-18. While there will always be some variances in the opening prices for different companies this price generally reinforces the relative strength of market price improvement.
Further reinforced by Dairy Australia in their recent Situation and Outlook report, the improved outlook for 2017-18 offers sustainably better
returns with indicative prices for the year approaching $6 /kg ms.
Bega and Warrnambool both stated their opening price of $5.50/kg ms. Over the years both companies have been very consistent with their prices reflecting the world market, and their farmer suppliers have been paid accordingly. We can be confident that the opening prices of both Bega and Warrnambool reflect the steady upward improvements we have seen in world market prices over the past 6 months.
This week we also saw the release of Fonterra’s opening price for the coming year at $5.30 /kg ms, which is Fonterra’s true interpretation of the market price and reinforces the variances in opening prices between companies.
A short while ago Fonterra announced it was going to pay an additional 40 cents/kg ms to all its suppliers for the 2017-18 year to account for the step-down and claw back it applied to its suppliers last year.
While most Fonterra suppliers welcomed this news, there has always been concern that the 40 cents compensation payment would be marketed as part of their price for the 2017-18 year.
In a recent meeting with Fonterra, ADF was assured the 40 cents would be defined as a payment on top of their market price for 2017-18 and not actually part of the price. ADF was concerned that this compensation payment if marketed as part of their opening price to farmers, could be used to give Fonterra a perceived unfair advantage over all other companies.
We believe that companies who did the right thing by their suppliers for the 2015-16 year should not be accused of lagging behind Fonterra’s price for 2017-18. The announcement of the additional 40 cents as compensation was for the major step downs and clawbacks Fonterra applied to their suppliers during May 2016.
So, it was with considerable disappointment that we saw Fonterra’s announcement of their opening price and the supporting media release from Bonlac Supply Company. In their communications, they portrayed their opening price to incorporate the 40 cents to make the price $5.70 /kg ms, which makes them look like they are 20 cents/kg ms ahead of the competition.
Not only is this unfair to other companies which are above the Fonterra announced $5.30 opening market price, but it is also misleading to all their suppliers. It is a fact that the 40 cents/kg ms to be paid to all Fonterra suppliers this year is a compensation payment for 2015-16 – and should not, at any time, be characterised as part of the market price for 2017-18.
This past year, ADF and our state member organisations have worked in collaboration with companies to develop a Code of Practice on Contractual Arrangements. Most of the dairy companies participated in the development of the Code and agreed that one of the most important elements of the Code was the need for greater transparency in pricing for farmers.
By monitoring the application of the Code with farmers, we will be able to assess whether companies are conforming to the transparency principals outlined within the Code of Practice.
There is a real danger that Fonterra’s current characterisation of the 40 cents/kg ms being added to their market price for the year will give the wrong signal to all farmers and other companies that transparency only goes a small way.
It is important that all dairy companies remain fair and transparent in their pricing. The inconsistencies have indicated Fonterra and BSC are not being completely transparent with their suppliers. These types of contradictions are nothing but misleading at a time when the dairy industry has committed to rebuilding trust along the supply chain.
Interim ADF Chief Executive Officer
Tuesday, June 13, 2017
The value of trust and loyalty in any business relationship cannot be underestimated. For the dairy industry, a strong relationship, based on the pillars of trust and commitment, has been an essential part of growth and investment.
Across a large part of the current dairy landscape, not only has trust and loyalty been compromised, but so too has confidence. We acknowledge the priority being given to restoring relationships, but we also acknowledge this will take some time to achieve.
To ensure ongoing growth and profitability, there is agreement that our industry relies on all elements to operate effectively. Dairy farmers need processors, processors need retail outlets and retail outlets need consumers.
The news of Murray Goulburn's opening price and expected farm gate returns for the 2017-18 season has come as a severe disappointment to their farmers' suppliers and the industry.
Their announcement comes at a time when their competitors have a growing demand for milk supplies, largely due to the positive movements in the world market and the confidence that our farmgate prices will follow. Unfortunately, it appears the path Murray Goulburn has taken has left the company facing severe commercial challenges.
This will also have a big impact on their farmers.
Almost a third of Victorian farmers, as well as suppliers in Tasmania and South Australia, will face another year of milk returns which are below their cost of production.
Murray Goulburn has been a market leader for farm gate returns for the best part of three decades. It now finds itself unable to come close to matching the milk prices offered by other companies.
There are no doubts the dairy crisis caused by the combination of low world market prices and last year’s unexpected price drops have impacted the outlook of many farmers as they consider their future.
Milk production in Australia has fallen by more than 8% in 2017 compared to last year. A number of factors, including heavy culling of stock, contributed to this. In many cases, this was in response to a need to cover costs. As a result of these events, confidence and loyalty to companies have taken a heavy toll.
The ongoing growth and profitability of the Australian dairy industry are attributed to the presence of strong cooperatives and we agree that this should continue, if possible.
Murray Goulburn's new management team and the Board are clearly doing all they can to restore the fortunes of the company. Their immediate challenge is to provide a competitive milk price which, if not addressed, presents a risk to the company and to their farmers.
Farm businesses and the health and wellbeing of farmers and their families must be a priority for the industry. This can be achieved by continuing our commitment to deliver services and resources to assist farmers in their business decisions.
Competition for milk is strong and shows no signs of slowing down. Our industry needs to start growing so that we can be in a position to supply the markets available to us - both the Australian domestic market and those around the world.
ADF cannot enter into the business decisions of companies and the business decisions of their suppliers.
What we can do is work in collaboration with our SDO's to seek solutions which will create the right environment for dairy companies to prosper and grow, along with a strong focus on our dairy farmers to grow their business and profits.
Now, more than ever, the industry needs to remain focused and united in its goals to achieve a strong profitable future for dairy farmers.
Interim ADF President
Friday, May 26, 2017
Farm animal welfare is a significant issue in Australia and overseas, and consumers are increasingly interested in knowing that a high standard of animal welfare is maintained throughout the supply chain of products they purchase.
Healthy and well cared for cows are a priority for every dairy farmer as it is central to having a successful and sustainable dairy farm.
There are many on-farm practices that have been part of dairy farming for hundreds of years and we must ensure we have a social license from consumers to continue the practices. We recognise that some things that happen on-farm can be confronting to people who are not farmers and may not understand the reason behind them. It is up to us to ensure the public understand what we do, why we do it and that at the core of every farmer is the health and wellbeing of their animals.
As an industry, we take our responsibilities for animal welfare seriously and are committed to continuous improvement of our animal husbandry practices. All farm animals must be treated with care.
We want our consumers to know farmers, processors, transporters and meat processors actively engage with each other to ensure all cows and calves are treated humanely.
The Australian dairy industry supports the Australian Animal Welfare Standards and Guidelines for Cattle as well as the Land Transport Standards and Guidelines. These were developed in partnership with the animal welfare groups and Government, and provide the industry with a clear vision that the welfare of all animals in Australia is promoted and protected by the adoption of sound animal welfare standards and practices.
We are continuously working to improve animal welfare standards to ensure we meet consumer and public expectations and expect all persons managing livestock abide by these standards to ensure best practice is observed on-farm.
It is a priority of the dairy industry to regularly review policies and practices in line with public perceptions and to invest in ongoing national training and education to ensure farmers constantly strive to go above and beyond the agreed standard.
ADF, in collaboration with Dairy Australia, and other industry partners continue to work with industry, Government and animal welfare groups such as the RSPCA to ensure the wellbeing of our herds in all farming systems.
Interim ADF Chief Executive Officer