“We absolutely believe that in this State and in Queensland, and to a lesser degree in New South Wales, where the industry’s profitability is primarily dependent on liquid milk sales, that $1-a-litre milk takes money out of the supply chain,” WAFarmers dairy section president Mike Partridge said last week.
Mr Partridge was commenting on part of the ACCC’s November 30 interim report and recommendations from a 12-month investigation of Australia’s dairy industry which involved Commissioner Mick Keogh hearing from WA farmers at Bunbury and from the State’s main dairy processors at private meetings.
As reported in Farm Weekly last week, from its inquiry so far the ACCC concluded introduction of $1-a-litre milk in 2011 “did not have an observable impact on farm numbers, output or profitability”.
Declining dairy farmer numbers and reduced farmgate prices for milk could be explained by other factors, it said.
It concluded that while $1-a-litre milk had eroded processor margins, dairy farmers had been “quarantined” from the impact because farmers were paid the same price for their milk whether it went into $1-a-litre supermarket milk or higher value products.
But WAFarmers’ dairy section disagreed with that conclusion.
“In 2011 we did a study which showed $1-a-litre milk took $25 million a year out of the supply chain and we stand by that today,” Mr Partridge said.
“Less money in the supply chain impacts on each level and the individual farmer is in the weakest position compared to processor companies and supermarket chains.
“Most of the savings (from $1-a-litre milk) have gone to the consumer but they have come out of the pockets of processors and, in turn, out of the pockets of farmers.”
Mr Partridge pointed out the $1 supermarket price was still maintained more than six years after its introduction, having resisted inflation and normal cost-of-living price-increase pressures other consumer items had been subjected to.
This meant the downward price pressure it exerted on farmers’, processors’ and supermarket chains’ revenue return from milk was actually increasing year-on-year, a point acknowledged by the ACCC in its interim report.
Of the three, dairy farmers were the least able to absorb declining margins for milk and generally had very limited options to recoup lost milk revenue from other sources, Mr Partridge said.
“When and where does $1 milk end?” he asked.
“What is the mechanism for ending it?
“At the end of the day (because of the isolated location and inherent cost increases that would come from having to supplement WA’s milk supply from Eastern States) we need a sustainable dairy industry here.
“Some of the prices processors are paying farmers are not sustainable, not in the short-term or the long-term.”
Mr Partridge said he supported the ACCC’s recommendation of a mandatory code of conduct.
Milk supply contracts were “supposed to be in the spirit of the code”, he said, but the code was voluntary which meant processors could opt in or out and some contracts did not abide by the code.
While contracts need to be a lot simpler and more transparent, as recommended by the ACCC, a mandatory code should require stated prices to apply for the full term of the contract and there should be a premium paid to suppliers signing longer-term contracts, Mr Partridge said.
Also, a maximum of three months’ notice should be mandated for suppliers intending to leave a processor.
“Ideally, the focus should be on developing a good working relationship between farmers and processors rather than on contract terms and conditions,” Mr Partridge said.
“If we have good relationships between the two then onerous contract terms are not necessary.”
He said it was likely WAFarmers would make another submission to the ACCC.
The ACCC is seeking feedback on its interim report and eight recommendations by January 31, 2017.
It is due to release its final report in April.