Latest blog posts
Friday, September 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.
Acting ADF President
Friday, September 16, 2016
Senator Lambie announced she would seek a Senate Inquiry into the Dairy Industry. The ADF was quite concerned about the range of issues the Senator wished to have addressed and worked with a range of people to achieve a more constructive terms of reference.
While we are not pleased with all the issues to be considered, we believe it is better than it would otherwise have been.
This inquiry will be in addition to the Australian Competition and Consumer Commission (ACCC) inquiry into the national dairy industry which is due to start in November.
This inquiry presents an opportunity to examine the issues affecting the competitiveness and future viability of dairy farming in Australia with farmers bearing nearly all the risk in the dairy supply chain in the domestic market.
Some of the issues that will undoubtedly be covered include the impact of supermarket price decisions namely the $1 milk on dairy farmers, and the ongoing physical and mental well being of farmers.
In addition to these, the senate inquiry will likely focus on providing greater transparency in contracts with processors by offering a clear, consistent formula for milk pricing; and include unambiguous conditions, which is something ADF has advocated strongly towards. Many farmers who have experienced unfair milk contracts or agreements may have been burdened with debts when the milk price falls.
ADF hopes to be able to achieve implementation of fairer contract clauses through negotiations with processors and be able to provide the Inquiry and Government with industry developed and shared solutions rather than have Government intervene to impose further regulatory burden that neither farmers or processors want.
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 fairer contracts and exploring ways to shed risk by engaging in future markets.
ADF and our state members are united around a clear objective: to ensure every Australian dairyfarmer has the capability, tools and support to fully understand their individual business position, and to make decisions about their future based on sound evidence and are not be always left to take all the risks in the market place chain.
To prepare, we believe that all farmers must have earlier and clearer pricing signals, with a more equitable pricing system that better balances risk along the supply chain of farmers, processors and retailers. Without this, farmers and allied businesses will remain vulnerable.
If we are able to work on minimising potential risk for the future, then we welcome the opportunity to stand up for rural and regional communities that are doing it tough to make sure that we are able to establish a long term solution that benefits all dairy farmers.
We look forward to working with industry, government and the Economics Reference Committee to advocate on behalf of the dairy farmers to ensure transparency and equal opportunity, which will provide a fairer way to uncover inequities in the dairy industry.
The report of the senate inquiry is expected to be announced on February 24, 2017.
Acting ADF President
Friday, September 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]
Acting ADF President