Subscribe to ADF communications

The dairy industry has received mixed outcomes from the Government’s 1 July amendments to the skilled occupation lists announced as part of the 457 visa reforms.

The Government’s decision in April to change the skilled occupation lists used to employ 457s and other permanent visas, introduce a Skilling Australians Fund levy and put the Dairy Industry Template Labour Agreement under review, immediately affected dairy farmers and processors’ ability to hire overseas staff.

The changes are being implemented in stages and the Australian Dairy Industry Council (ADIC) has been there every step of the way trying to lessen the impact.

ADIC has been engaging in consultations with the Department of Immigration and Border Protection, lobbying relevant ministers and raising our concerns with the Department of Agriculture and Water Resources about the impacts of these changes on the dairy sector.

We have also partnered with the National Farmers Federation and other commodities to present a united agriculture view.

On 1 July we learnt that our meetings, letters and submissions have had some impact.

Five occupations in the processing sector have been reinstated to the occupation lists, including Food Technologist – a highly specialised occupation which processors have been unable to fill with local candidates.

There is still more work to be done.

The 1 July changes confirmed that ‘Dairy Cattle Farmers’ can only be employed for two years (with capacity for renewal onshore once only), with no pathway to permanent residency. The announcement also confirmed the requirement for contributions to be paid to the Skilling Australian’s Fund, a levy which could increase the cost of hiring 457s.

We are also frustrated that after initially being told our Labour Agreement would remain unchanged, we were later informed that labour market testing had increased from six to 12 months and processing times had been extended from three to six months.

The dairy industry relies on overseas workers to fill labour shortage gaps in our $13.7 billion industry. Despite ongoing investment in upskilling and training local people, demand continues to outstrip supply.

We must have the right policy settings in place to allow dairy farmers and processors to hire the people that they need to fill crucial roles.

ADIC will continue to make sure dairy’s voice is being heard as these visa reforms become finalised by March 2018.

By Terry Richardson

ADIC Chair

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

The value of trust and loyalty in any business relationship cannot be underestimated. For the dairy industry, a strong relationship, based on the pillars of trust and commitment, has been an essential part of growth and investment.

Across a large part of the current dairy landscape, not only has trust and loyalty been compromised, but so too has confidence. We acknowledge the priority being given to restoring relationships, but we also acknowledge this will take some time to achieve.

To ensure ongoing growth and profitability, there is agreement that our industry relies on all elements to operate effectively. Dairy farmers need processors, processors need retail outlets and retail outlets need consumers.

The news of Murray Goulburn's opening price and expected farm gate returns for the 2017-18 season has come as a severe disappointment to their farmers' suppliers and the industry.

Their announcement comes at a time when their competitors have a growing demand for milk supplies, largely due to the positive movements in the world market and the confidence that our farmgate prices will follow. Unfortunately, it appears the path Murray Goulburn has taken has left the company facing severe commercial challenges.

This will also have a big impact on their farmers.

Almost a third of Victorian farmers, as well as suppliers in Tasmania and South Australia, will face another year of milk returns which are below their cost of production.

Murray Goulburn has been a market leader for farm gate returns for the best part of three decades. It now finds itself unable to come close to matching the milk prices offered by other companies.

There are no doubts the dairy crisis caused by the combination of low world market prices and last year’s unexpected price drops have impacted the outlook of many farmers as they consider their future.

Milk production in Australia has fallen by more than 8% in 2017 compared to last year. A number of factors, including heavy culling of stock, contributed to this. In many cases, this was in response to a need to cover costs. As a result of these events, confidence and loyalty to companies have taken a heavy toll.

The ongoing growth and profitability of the Australian dairy industry are attributed to the presence of strong cooperatives and we agree that this should continue, if possible.

Murray Goulburn's new management team and the Board are clearly doing all they can to restore the fortunes of the company. Their immediate challenge is to provide a competitive milk price which, if not addressed, presents a risk to the company and to their farmers.

Farm businesses and the health and wellbeing of farmers and their families must be a priority for the industry. This can be achieved by continuing our commitment to deliver services and resources to assist farmers in their business decisions.

Competition for milk is strong and shows no signs of slowing down. Our industry needs to start growing so that we can be in a position to supply the markets available to us - both the Australian domestic market and those around the world.

ADF cannot enter into the business decisions of companies and the business decisions of their suppliers.

What we can do is work in collaboration with our SDO's to seek solutions which will create the right environment for dairy companies to prosper and grow, along with a strong focus on our dairy farmers to grow their business and profits.

Now, more than ever, the industry needs to remain focused and united in its goals to achieve a strong profitable future for dairy farmers.

Terry Richardson

Interim ADF President