ONE year ago tomorrow, the dairy industry was hit by a seismic shock few have seen before. By SIMONE SMITH.
Murray Goulburn, Australia’s largest dairy company, not only slashed the price it paid to farmers, but also made farmers pay back money the company said it overpaid them.
A week later, New Zealand giant Fonterra followed suit, sending the industry into a spin.
Twelve months on, the price may have risen slightly, but farmer trust in the big companies hasn’t.
“The last 12 months have really damaged the relationships, openness and trust between dairy farmers and processors,” dairy consultant John Mulvany said.
United Dairyfarmers of Victoria president Adam Jenkins agreed.
“I think everyone is still very cautious,” he said.
“I don’t think there has been enough resolution from what has happened last year, even though we are working through a code (of conduct for milk processors) … there has been a loss of trust and it will take some time to build up again.”
Mr Jenkins said the industry needed a long-term vision, not the current short-term actions of processors chasing milk from each other.
This had led to many farmers swapping companies, while others had left the industry.
But, in a positive sign, Mr Mulvany said he was seeing “newbies” entering the industry, either returning to the home farm or new to the industry.
These new entrants operate with “quite intense analysis, are quite objective and either have the skill set to operate a profitable dairy farm or know what the wrong skill set is,” he said.
“At the same time the fundamentals are pretty much the same … it is not as if things that generate a profit have changed.
“It’s not as if the industry is looking at a gloomy future. It’s looking at the same future it has in the past, but with a lower trust between the people who produce the milk and the people who process it.”
Dairy Food Safety Victoria records show that from July 2015 to last week, 297 farm licences were cancelled and 66 new farm licences issued, a net reduction of about 5.6 per cent.
Murray Goulburn and Fonterra are optimistic about farmgate milk prices, but neither will reveal details about next season’s pricing.
Fonterra Australia milk supply manager Matt Watt would not be drawn on whether Fonterra, which claims to be paying more than Murray Goulburn, could guarantee it would not cut its price before the end of the season.
“We’re running our own race, and while we know $5.20 (a kilogram of milk solids) is still below the cost of production for many of our farmers, it is reflective of our product mix and what it can return in the market,” he said.
He said there were still enormous opportunities and a positive global outlook, but a high degree of volatility.
A Murray Goulburn spokesman said “restoring the confidence and trust of suppliers was a key priority for Ari Mervis (MG’s new managing director)”.
“Improved seasonal conditions, current commodity pricing and the realisation of planned cost reduction initiatives indicate improved milk prices for suppliers,” he said.
Dairy Australia analyst John Droppert also warned on market volatility.
“Global Dairy Trade on average is about 40 per cent up on this time last year,” he said.
“It bottomed out in August 2015, including the latest event (last week), the average GDT price is 73 per cent above the trough in August 2015.”
Source: Weekly Times