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

 

Explaining the Dairy Levy Poll

Jan 24, 2017

 

Today, it was announced that there will be no change to the dairy levy.

This decision was made by the Levy Poll Advisory Committee (LPAC), whose core role is to make recommendations regarding the level of farmer levy funding to support the long-term research, development and extension strategy for the dairy industry.

It is important to note, per the ‘Explanatory Statement’, issued by Authority of the Deputy Prime Minister and Minister for Agriculture and Water Resources that the changes may provide Dairy Australia with savings of up to $1 million every five years, which could be re-directed towards research & development, plus marketing and promotion activities for the benefit of the dairy industry, including dairy farmers.

Given the announcement of the LPAC decision, there will likely be some opposition to the recommendations. Therefore, it is important that there is a good understanding of the process which formed the LPAC and what could happen as a result of the recommendation.

Background

During 2015, there was a levy poll review process undertaken to consider the requirement for Dairy Australia to hold a levy poll every 5 years.

That process led to a recommendation to levy payers to change the regulations and form the LPAC, which would undertake a review of levy funded activities and make recommendations to industry on whether a levy poll to change the levy rate was required.

Levy payers voted in late 2015 to accept the proposed changes to the levy setting process. New regulations to give effect to the changes were signed by the Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce in late December 2016.

The LPAC was convened several times in the second half of 2016 to consider whether a levy poll should proceed in 2017 as was required under the previous regulations. These LPAC meetings were based on draft regulations which were expected to be signed off late in 2016.

Australian Dairy Farmers and Dairy Australia, under the new regulations process, were required to provide the LPAC with a joint paper and recommendation on what should happen with the levy rate. The joint recommendation was for no change in the levy rate.

The major piece of information available to inform farmers will be the LPAC report which gives an outline of the work it did, what information it used in arriving at its recommendation(s), who it consulted with, its assessment of the value of the DA levy, etc.

Set up and composition of the LPAC

The six initial members of the LPAC were nominated by Australian Dairy Farmers, Dairy Australia and the Australian Dairy Products Federation. The initial members formed a selection panel that proceeded to select up to nine milk producer levy payer representatives who applied to become members of the Committee. All levy payers were invited to apply for one of the nine levy payer positions.

All the details around this are on the Levy Poll Advisory Committee web site – www.dairylevypolladvisorycommittee.com.au

What happens next?

As required by the new regulation requirements, the Chair of the LPAC - John Lawrenson, is required to advise Dairy Australia’s Chair and Minister Joyce, of the decision of the Committee. This happened this week, along with the media statement issued by the LPAC.

Dairy Australia has 14 days from receipt of the decision of the LPAC to advise all levy payers of the outcome.

Any levy payers wishing to oppose the LPAC recommendation and propose an alternative option can initiate a petition.

Levy payers who are Group A members of Dairy Australia and who together represent 15 per cent of total levies paid in the previous financial year, will have 75 days to lodge a petition with Dairy Australia, requesting a levy poll to be held and specifying their proposed levy option.

If there are one or more petitions which each represent at least 15 per cent of the total levies paid, then Dairy Australia will be required to hold an Extraordinary General Meeting (EGM) at which Group A members of Dairy Australia will have the opportunity to vote to either proceed or not proceed with a levy poll.

If the resolution to hold a levy poll is passed at the EGM, Dairy Australia must present the petition and the results of the vote to the LPAC within 14 business days after the resolution is passed.

The LPAC must also request Dairy Australia arrange a levy poll as soon as reasonably practicable and must set out the levy options proposed by the petition and may set out any other levy options which LPAC proposes. LPAC has an ongoing role in the conduct of a levy poll including, but not limited to, information to be provided to levy payers to use in determining their voting intention.

In the event of no petitions which represent 15 per cent of total levies paid within the 75-day period, the levy rate remains unchanged and there will be no Levy Poll.

What could happen

During the last levy poll, there was a reasonable percentage of farmers who voted for a zero levy, so it is not unreasonable to expect there will be one or more groups who will organize a petition to have a levy poll with a levy rate less than currently applies, or set to zero.

To guarantee the fair and democratic rights of all levy payers who are the Group A members of Dairy Australia, ADF believes it was important that provision was made in the new regulations to ensure there was a process to allow different views among farmers to be considered.

Whether a petition reaches the full 15 per cent threshold to trigger a EGM of Dairy Australia Group A members will be the issue.

If there is a need for an EGM because of one or more petitions to Dairy Australia, then ADF will need to be clear about why it recommended, jointly with Dairy Australia, that the levy rate should remain unchanged.

This will be a process ADF must manage during the leadup to a required EGM of Dairy Australia but may also need to be engaged in the debate during the 75 days in which a petition can be presented.

To read the explanatory statement of the Legislation, visit https://www.legislation.gov.au

For further information regarding the Dairy Levy Poll process review, visit www.dairylevypollreview.com.au


John McQueen

Interim ADF Chief Executive Officer


 

What We Really Need Now

Aug 19, 2016

The Four Corners ‘Milked Dry’ program aired Monday 15th and highlighted the financial toll that cheap dairy products and fluctuations in both the domestic and global markets have taken on dairy farmers. This state of crisis has also shown just how far consumers will rally to help our struggling industry, but it will only solve half the problem.

What we really need now is to go beyond short term measures to create stability for our industry’s long term future. The need for transparency and improved fairness by finding new ways to manage price volatility for farmers; and through simplifying supply contracts so farmers know exactly what it means and how it will affect them.

The first in a series of formal talks with the dairy industry, the Prime Minister Malcom Turnball, Deputy Prime Minister Barnaby Joyce and representatives of Murray Goulburn met to discuss ways to increase the profitability of the Australian dairy industry in order to support farming families and their communities. An important thing to take away from this meeting is the fact that the Australian Government and Murray Goulburn both agreed that Australia’s dairy farmers deserve fair returns at the farm gate, as well as transparency in milk price arrangements and supply contracts. Another important outcome was the role Murray Goulburn will play in explaining to their suppliers what steps they will take to support farmers and restore confidence to the dairy sector.

We expect a similar message and outcome of next week’s meeting between Fonterra’s Australian management and the Government who will continue to discuss the state of the dairy industry and how the current issues could be avoided in the future.

The last in the series of talks is the dairy symposium to be held in Melbourne on August 25, chaired by Minister Joyce with representatives from the farming, processing and retail sectors. We will be asking the government to formally review a number of high priority issues including $1 milk, fair contract terms and conditions, and a world dairy commodity pricing index.

At ADF, we are working closely with state members and dairy farmer representatives to make sure the government continues to strengthen the industry through consultation with both Australia’s dairy farmers and processors. We are committed to provide innovative and practical solutions to help farmers achieve a sustainable level of profitability and ensure that our farmers’ best interests are reflected in the work we do so they can take control of their situation and make informed choices.

One of the ways the government is helping dairy farmers is by providing assistance through a $579 million support package. This package includes access to Dairy Recovery Concessional Loans, Farm Household Allowance (FHA), the Rural Financial Counselling Service and an additional $900,000 for Dairy Australia to roll out ‘Tactics for Tight Times’ one-to-one farm business advice.

The government support package is there to help us through this difficult time. It is very important that dairy farmers, including farm owners, share-farmers or leasers not self-assess their eligibility for government assistance. If you have any questions relating to whether you are eligible for the concessional loans, please contact a financial counsellor or the relevant state delivery agency as they will be able to help you with information and the application process.

David Basham

Acting ADF President  


 

 

Its Time To Stand Together

Aug 15, 2016

Most of you are aware the Four Corners ‘Milked Dry’ segment will go to air tonight, Monday 15th August, which is a follow-on from the dairy price cuts that happened a few months ago.

As a Dairy farmer, we know the industry is not immune to the volatility of milk prices and as history has shown the prices will probably continue to fluctuate well into the future.

What the majority of the public don’t see is how resilient we are. Not just as farmers, but as business people, as entrepreneurs and experts in sustainability, with the skills to adapt our businesses within this challenging environment as best we can.

Behind the scenes, the Dairy industry are working together to provide farmers with the support they need during this challenging time. As an industry, we are united in going beyond short term measures to create stability for our industry’s long term future.

An important aspect of this is the need for transparency and improved fairness by finding new ways to manage price volatility for farmers. We are working to address these issues through simplifying supply contracts and improving transparency in the milk pricing system.

The ADF is pleased that the Hon Barnaby Joyce MP is proceeding to hold a Symposium with farmers, manufactures and retailers. The ADF will provide strong dairy farmer representation regarding the major issues we face including $ milk, fair contract terms and conditions, and a world dairy commodity pricing index which are just a few of the high priority issues.

There are unfortunately no silver bullets to restore our industry, but there are resources available to help farmers navigate the current challenges and manage the impact of recent announcements. This includes the Tactics for Tight Times program, which helps provide clarity to farmers about settings and seasonal conditions, supports key decision making on farms, and put farmers directly in touch with other services such as health and wellbeing organisations. It’s important to make the time to take up these opportunities.

While being put in the spotlight can sometimes feel overwhelming, the media is a great vehicle to share our message with the public to let them know what is happening and ways they can help. It is also a chance for state organisations and dairy farmers to let consumers know that they can show their appreciation and support by buying Australian milk and dairy products.

David Basham

Acting ADF President


 

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