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

 

Global Milk Prices Are On The Rise

Sep 09, 2016

Recent data on global dairy prices shows a positive rise that looks as if it might continue.

The average price in the Global Dairy Trade auction overnight rose by 7.7 per cent. This followed two consecutive rises in the past month, with a 12.7 percent increase in prices at the most recent auction, while the important whole milk powder (WMP) price rose by 3.7 per cent.

These results have driven the index to an 18 month high.

Analysts are predicting further rises in the global milk price which suggests that the worst might be behind us and we may start to see some stability return to the global milk supply. This will hopefully occur through rebalancing of supply and demand due to cut backs in EU production, intervention buying of SMP (skim milk powder) in Europe and increased buying in China.

Although these increases are nowhere near enough to return to sustainable prices it is pleasing to see that prices are on the rise and things may be looking better in the long term.

Unfortunately, the most optimistic scenarios see the market turning in any meaningful way in the first quarter of 2017.

As dairy farmers we have a limited capacity to manage the market price so it is important to always focus on what we can manage, remain aware of industry risks and maintain a low cost production system so we are in a better position to weather any storms.

While we are an industry that has been under intense pressure, we are also an industry that has the know-how and resilience to overcome adversity and thrive in the long term.

ADF, together with our state members, is continuing to fight for farmers. Even though we won’t be able to solve all of the issues farmers are facing, we are working to relieve some of the pressures to create change to ensure that an unfair share of the risk in the value chain is not taken by the farmer and that recent events in the industry don’t happen again.

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.

While we wait for the uptick in prices we must remember that we are a resilient industry with a long, sustainable future ahead and our profitability depends greatly on the continued support of the Australian public.

It is important to remind the community that dairy farmers – regardless of the challenges they face are good business people, who care for their cows, work to enhance the well-being of their people and that every efficiency we make on farm has ties to minimising our impact of the environment.

To view the global dairy price index [click here]

David Basham

Acting ADF President


 

 

Making Sense of the ACCC Inquiry

Sep 02, 2016

The symposium was a great opportunity to facilitate a discussion around how better to manage risk along the dairy supply chain, including managing the effects of world dairy prices.

A number of topics were covered including the outlook for the Australian dairy industry and options for improving milk price transparency, strengthening bargaining and restoring industry confidence.

One important outcome of the symposium was the announcement by Deputy Prime Minister and Minister for Agriculture and Water Resources Barnaby Joyce regarding the upcoming Australian Competition and Consumer Commission (ACCC) inquiry into the national dairy industry.

The inquiry under Part VIIA of the Competition and Consumer Act 2010, has provided the Commission with additional powers to obtain information from the entire value chain. What this means is the ACCC has been given extra investigatory control to undertake the inquiry, with the authority to dig deeper than it would have been able to in a market study.

Already investigating specific issues related to the dairy crisis, the ACCC will have the power to determine whether suppliers engaged in misleading, deceptive or unconscionable conduct by slashing prices leaving some dairy farmers with massive debts.

The inquiry 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.

Dairy farmers deserve fair returns at the farm gate, as well as transparency in milk price arrangements and supply contracts. ADF believes that the ACCC inquiry is a thorough and fair way to uncover inefficiencies and inequities that farmers face; and helps to identify a way forward.

From what we have been told the ACCC will release an issues paper and engage with stakeholders through public and private hearings starting in November. We encourage everyone in the dairy industry to contribute to the inquiry to ensure the ACCC gets the information it needs. There will also be confidentiality arrangements in place to protect commercial interests.

After the stakeholder engagement meetings, we will be encouraged to provide written submissions to the ACCC before they deliver a final report to government in the second half of 2017.

This inquiry will shed some light on the bigger picture by analysing the broader dairy industry to identify structural and behavioural issues that affect the industry’s performance. By engaging with stakeholders, the ACCC will have a better chance of identifying and understanding the key issues in the industry and we look forward to being a part of the solution.

Further information about the inquiry, including about how you can be involved, will be made available following the receipt of a Terms of Reference from the Treasurer.

The government will continue to work with dairy farmers and processors to strengthen the industry, including our election commitment of up to $2 million to establish a commodity milk price index, while the ACCC’s findings from this inquiry will be a vital source of information when looking at options for the index.

Further information on the ACCC’s inquiry, including its terms of reference, will be made available at www.accc.gov.au/agriculture shortly.

David Basham

Acting ADF President

 

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