What a gas

Mar 03, 2017

It is no secret that gas prices are on the rise.

An essential resource, gas is used to pasteurise milk and produce the heat needed for our driers to create milk powder.

Gas is already a significant input cost for dairy processors in Australia. Based on reports, gas prices are forecast to rise between 50-100 per cent by 2019. This will impact the processing of dairy and increase the manufacturing costs of milk products. The impact of any gas price rises can and will be felt by dairy farmers through their processors.

The rise in gas prices are due to supplies being diverted to meet international liquefied natural gas supply contracts, low levels of exploration and forecast production, restrictions on onshore exploration and development in some states and territories, and infrastructure constraints. Tighter gas supply translates to higher gas prices.

As the laws of supply and demand would suggest, Australians, sitting on bountiful gas reserves, should be enjoying cheap gas prices. But that’s not the case as a high percentage of our gas is being exported overseas.

Further to this, last year, the Victorian Government with bipartisan support banned unconventional gas exploration, including the controversial process of hydraulic ­fracturing (fracking), and extended a morat­orium on onshore conventional gas exploration until the end of the decade.

New South Wales and Tasmania also have various bans on onshore gas exploration and development in place. This means that the competition by domestic and international consumers for gas from existing fields will intensify, which will drive up prices further.

There are surely many policy levers that can be considered in this environment. One such lever was implemented more than 30 years ago, and formalised in 2006, as the North West Shelf offshore gas production was being developed. The WA Government implemented a policy of domestic reserve of 15 per cent to ensure their domestic market was not adversely impacted from the development of export markets.

It is understandable why many communities and farmers are concerned with hydraulic ­fracturing (fracking), and why there was bipartisan support to ban this type of unconventional gas exploration. However, we support onshore conventional gas mining which currently has a moratorium and, according to the Australian Competition & Consumer Commission, is needed as insufficient reserves exist for domestic and international demand.

In response, the COAG Energy Council will be implementing a package of reforms. Even so, there is still uncertainty whether sufficient gas will be available to meet future domestic demand.

The dairy industry along with other manufacturers are concerned about the policy failures in Australia when it comes to gas availability and prices. We need to add our voice to the growing list of industry groups who are calling for urgent action to address the shortage of gas on the domestic market.

John McQueen

Interim ADF Chief Executive Officer

 

It is a win win situation

Oct 07, 2016

Collaboration is the key to get us where we need to be. Our industry relies on all the elements to operate effectively. Farmers need processors and vice versa – so the solutions require all of us to come together to ensure a positive future. It is a win win situation.

It is one thing to constantly pick apart the industry to highlight the problems, it is another to actually work together to bring about real solutions to ensure this never happens again.

Last week the Australian Dairy Farmers held an important meeting with state dairy organisation presidents and processors to address a range of contractual issues which farmer organisations have been trying to address and rectify for 15 years.

During the meeting we discussed a range of topics including the difficult circumstances of farm gate price reductions, the introduction of new legislation on unfair contracts which comes into effect in November and the outcomes from the August Symposium held by Deputy Prime Minister, Barnaby Joyce.

This meeting provided an ideal opportunity for the dairy industry to unite and develop a voluntary industry wide code of practice on contractual arrangements with farmers.

The code will include:

  - greater transparency in contracts and supply agreements

  - ensuring a pricing formula or a price setting mechanism is clearly defined within a contract

  - ensuring pricing adjustments to farmers throughout a contract are clearly defined and that there will be no retrospectivity

  - while acknowledging step ups do occur and step downs have occurred in severe circumstances, a principle should be incorporated into contracts which clearly outlines that as much notice as possible is necessary if a step-down has to occur

  - ensuring farmers should receive all payments that accrue over the term of a contract or supply agreement – the final payments of a contract should not be contingent on the farmer being a supplier when, for example, the June payment is made in mid-July

  - ensure that where a processor has a contracted volume limit or a different price for volume above a particular level then exclusivity of supply to that processor must not occur

  - ensuring there is a clearly defined mechanism for giving notice of termination of a contract

  - ensuring there is a clearly defined mechanism of how contract terms and conditions can be modified and the farmer having the right to a negotiated variation, not simply a request from the processor.

Incorporating these principles into a code of conduct will give farmers, or their representative, the opportunity to have a contract or supply agreement which is truly negotiated and not simply an agreement which is a “take it or leave” it approach to farmer’s milk supply arrangements.

The ADF together with the state member organisations have worked hard since the crisis unfolded to ensure future milk supply agreements are balanced, fair and transparent. It has been a long process to get to this stage and a major breakthrough for the entire industry.

State dairy farmer organisations have been working to achieve these improvements for many years. By having a national organisation which is well resourced the States can achieve things together that would be impossible to achieve on their own.

We plan on finalising the draft code as soon as possible, ahead of the new legislation and before the Australian Competition and Consumer Commission inquiry into the dairy industry is finalised next year.

Now more than ever, the dairy industry needs to remain focused and united in its goals to achieve a shared vision of improving the profitability and sustainability of dairy farmers and the entire dairy industry in Australia.

David Basham

Acting ADF President

 

 



The Difference is in the Detail

Sep 23, 2016


Over the last few days, New Zealand based Fonterra lifted its forecast milk payout for the second time. On Wednesday the estimated Farmgate price was boosted by a further 50 NZ cents to $NZ5.25, while the company maintained its dividend payout to farmers resulting in a total amount of $NZ5.75 to $NZ5.85 per kilogram.

Australian companies are between 10 – 20 per cent below New Zealand’s latest forecast. 

While Fonterra's announcement follows the increased global dairy prices at the Global Dairy Trade auctions, Australian farmers are still waiting for theirs. Although there are any number of reasons why we are behind New Zealand, it still makes for an interesting conundrum when Australia has a bigger domestic market and yet our prices remain unadventurously low.

This really highlights how volatile the world milk price is and why we need regular, clear and realistic market signals in Australia.

By establishing a commodity milk price index tool there will be greater transparency to allow farmers to make their own assessments on milk price forecasts. Farmers will be able to better balance risk along the dairy supply chain, especially when it comes to managing the effects of world milk prices.

New Zealand already has a milk price index and it works quite well, as they have over 90 per cent exports, and can set themselves against the world market.

In Australia we have a 65 per cent domestic market and a different export commodity mix which should deliver a higher price for Australian farmers than the New Zealand price in a low commodity market as we are in now. Therefore, Australia needs to have an independent commodity index rather than use New Zealand’s due to our different export commodity mix.

ADF has had extensive discussions with government on the proposed index and we are looking forward to help shaping this important tool. It’s vital we get this right so all farmers have the ability to use the global information to assist them when they negotiate supply contracts with processors.

The index needs to be independent and transparent with easily accessible data that isn’t hard or complicated to use. It needs to be updated daily to capture the latest market intelligence from around the world and should translate commodity market and currency trends back to Farmgate prices across Australia. The index should also deliver a forward-looking price indicator to capture restored certainty and decision-making resulting in improved farmer confidence, better on-farm investment decisions, and ultimately higher farm profitability.

We have no doubt that our processors will increase their milk price forecast which is why we support the index and want to ensure it is a true indicator of commodity prices and meets the requirements of the Australian dairy industry as a whole.

The index will also give farmers the tool to better understand the impacts of world market trends and to be better armed with questions of the company they supply.

David Basham

Acting ADF President

 

Important Outcomes From The Symposium

Aug 26, 2016

The symposium was held yesterday in Melbourne and both the Australian Dairy Farmers CEO John McQueen and myself attended.

Firstly, I would like to thank the Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce for organising and chairing the symposium as well as other government officials who were in attendance.

I would also like to thank our state members - QDO, NSWFarmers, SADA, TFGA, UDV, WAFarmers and industry partners for their work prior to the symposium which gave us the opportunity to narrow our message down to focus on four important key areas.

Lastly I would like to thank the processors and retailers who were at the symposium to hear from concerned farmers, owners of small businesses and people who produce a quality product that many people in Australia rely on.

For me, the symposium provided an opportunity for the dairy industry to have an open discussion with key stakeholders to address the challenges facing the Australian dairy industry.

Our main points include no $1 milk, no late season drop in milk price, fairer contracts, commodity milk price index with an educational program and critical need for farmers and manufacturers to find the solutions rather than depend on government.

These points illustrate the need by industry to ease the pressure placed on farmers by having to accept an unfair share of the risk and possible financial fall-out. We believe in greater transparency and look forward to working with the government on establishing the commodity price index tool which will help tip the balance back to the farmer.

Since 2011, we have said that the $1 milk devalues the product by taking substantial value out of the supply chain and has to stop if we are going to maintain a sustainable industry. There needs to be greater fairness in contracts and we have committed to working with processors to ensure all contracts comply with the unfair Contracts Legislation that begins on November 12, 2016. Also, the situation in Western Australia needs to be addressed immediately as we don’t believe it’s right that nine farmers may not have anywhere to take their milk.

In response, Minister Joyce urges the need for industry to work together to better balance risk along the dairy supply chain, especially when it comes to managing the effects of lower world prices. He wants to see improved Farmgate returns for dairy farmers, an openness in milk price arrangements and fair and transparent milk supply contracts; plus, the development of a commodity milk price index which he committed up to $2 million in government funding to establish. Also, for industry to find a compromise to the $1 milk situation otherwise he will need to take action and push for an immediate solution.

However, he also acknowledged that these things will only happen if there is buy-in from industry and a willingness from key stakeholders to hear each other out and develop solutions together.

A surprise announcement made by Minister Joyce at the conclusion of the symposium advised that Treasurer Scott Morrison has request the ACCC to undertake an inquiry under Part VIIA of the Competition and Consumer Act 2010 providing the Commission with powers to obtain information from the entire value chain. What this means is the ACCC has been given extra investigatory powers to undertake the inquiry, with the authority to dig deeper than it would have been able to in a market study. The inquiry, which will begin in November, will investigate sharing risk along the supply chain, supply agreements and contracts, competition, bargaining and trading practices in the industry and the effect of world retail prices on profitability.

Yesterday’s dairy symposium delivered on Minister Joyce’s election promise to get key stakeholders together to address challenges facing the Australian dairy industry and discuss ways to improve the industry’s prospects going forward.

One of the ways the Coalition Government is delivering assistance to dairy farmers is with a $579 million support package to help manage through the current low price environment. The funding been allocated to four main areas including 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.

If you have any questions relating to whether you are eligible for the concessional loans, the government has released a dairy question and answer section on their website (click here). However, we suggest that you also 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


 

 

Select Tags