Opening Price vs Market Price

Jun 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.

John McQueen

Interim ADF Chief Executive Officer

 

Making the most of Canberra

Mar 31, 2017

On Wednesday, Australian Dairy Farmers (ADF) were in Canberra to discuss a range of issues with Ministers and Members of Parliament.

Throughout the day, ADF had the opportunity to discuss what is working well within the industry and to discuss what else needs to be done.

Our advocacy and policy work is at the heart of everything we do and is essential to ensuring Australian dairy remains competitive and well aligned for growth.

These meetings give us the opportunity to pursue important industry policy priorities and to reaffirm relationships with Ministers.

The main issues discussed included:

  • The progress on the draft Code of Practice;
  • The impact of technical barriers to trade (TBT) on the Australian dairy industry’s international trading opportunities;
  • Access to overseas workers to fill our workforce labour gaps;
  • Pathways to permanent residency for New Zealand born dairy farmers; and
  • Reiterating our support for the Effects Test currently before Federal Parliament. 

ADF continues to advocate for policies which will support the industry and we will continue to seek Government support to help drive innovation, which increases productivity and profitability.

We’re committed to ensuring the voice of the dairy is heard by highlighting the issues to Government and working with them on important reforms.

John McQueen

Interim ADF Chief Executive Officer


 

 

Coalition Continues Support for Australian Dairy Farmers

Aug 08, 2016

The ADF has heard from Minister Joyce that he will be convening a symposium on dairy issues as part of the Coalitions election commitments. The ADF will be working hard with state organisation members over the next few weeks to prepare for the Symposium.

We expect it will provide an opportunity to discuss the major issues facing the industry including $ milk, fair contract terms and conditions, a world dairy commodity pricing index, issues in WA where some farmers have been given notice of not being picked up and backpacker tax, to name a few of the high priority issues.

While we have welcomed the Governments support package we continue to urge changes to the criteria for access to most elements of the Governments support package, particularly the concessional loans package.

The plan announced in the lead up to the 2016 election, included $555 million in concessional loans with 10-year loan terms, $20 million for an upgrade to Gippsland irrigation infrastructure, $2 million to establish a commodity milk price index and $1.8 million to provide business and financial counselling.

I urge all farmers to not self-assess whether they are eligible for the concessional loans support package. We know many have had difficulty with access and we have been able to use some of these experiences in our ongoing discussions with the Department for changes to the eligibility criteria.

The Prime Minister and Deputy Prime Minister will be meeting with the Murray Goulburn Board to discuss the global and domestic challenges facing Australian dairy farmers. It will be interesting to hear the outcome of this meeting. Mr. Joyce will then convene the dairy farmer symposium with the Department of Agriculture and Water Resources

The ongoing support and commitment of government is essential for us to successfully navigate through these trying times so we are able to provide innovative and practical solutions to help farmers achieve a sustainable level of profitability. We need to ensure that the solutions we present are in our farmers’ best interests, so they can take control of their situation and make informed choices.

ADF thanks Barnaby Joyce for maintaining this election promise and his continued commitment to seeking solutions to the current dairy situation.

David Basham

Acting ADF President


 

Keeping an eye on the big picture

Jun 23, 2016

The first priority over the last few weeks has been to secure targeted assistance and roll out support to help farmers with their most pressing needs.

At the same time, we remain focused on the big picture – especially when it comes to water. It won’t be enough to help farmers get over this hurdle if their businesses later fall over because water is too scarce and expensive to stay milking in seasons to come.

We can’t control the weather. The recent rains are a welcome reprieve, but to make a substantial difference to the bleak outlook on water allocations for next season it will need to keep raining heavily in the catchments over the next few months..

So while we watch the skies, our priority remains achieving long-term objectives on what can be controlled. Environmental water trading, the Murray Darling Basin Plan and the Connections reset all have an important bearing on whether enough water will be available when farmers need it and at a price they can afford in 2016/17 and beyond.

We are advocating for State and Federal Government commitments to assist our industry by making more water available next season. Potential untapped sources include trade in northern Victorian allocations to urban centres such as Melbourne, as well as a share of the environmental water held in Victorian and Commonwealth accounts.

The amendments to the Federal Water Act last month mean that the Commonwealth Environmental Water Holder (CEWH) now has more flexibility to trade water it may not need. As of 31 March, the CEWH still had just over 300 GL in storage; while it has no plans to trade in 2016-17 at this stage, this may change as part of environmental planning now underway.

We also remain focused on the Connections reset. The announcement that only $388 million is left to deliver more than 100 GL savings was unwelcome news at a time when farmers already have so much on their plates. Now more than ever, we must get this reset right to provide sustainable infrastructure for a resilient dairy industry.

Once the election is over, we will be back in Canberra to keep the pressure on the elected party to achieve the Murray Darling Basin Plan’s environmental outcomes without removing any more water from irrigated agriculture.

State and Commonwealth Governments have an in-principle agreement to deliver the full 650GL in environmental offsets, and undertake more robust socio-economic assessment before any attempt to achieve more than the 2750 GL target. We are holding them to all of these commitments.

Select Tags