MANAGING growth to match market demand is a wise way to ensure the future of the dairy industry is prosperous, according to the boss of Canadian dairy giant Saputo. By: SIMONE SMITH
Chief executive Lino Saputo Jnr called on the large global co-operatives that influence the global volume of milk to ensure milk solid volumes match markets.
“There are five countries around the world that influence the amount of solids available for consumers. I’m just hopeful the co-ops around the world will have a better understanding of supply and demand,” he said.
“Co-ops in Australia have an influence in overall solids available for the market, but they are one of maybe three large entities and I would say the New Zealand co-op and EU co-ops have a bigger influence on what’s going on in terms of the economics for dairy farmers.
“My simple message is, we need to be wise about how we manage our industry. If we are wise about how we manage our industry then I think the future is very, very prosperous.
“If you have markets that are growing at a rate of 5-6 per cent per year we need to manage the growth in the industry at 5-6 per cent per year. Not beyond that. Because ultimately the economics are influenced by supply and demand.”
He said if there were too many solids on the market and not enough buyers then obviously prices would decline.
“As a dairy processor we would like dairy prices to remain attractive for the suppliers, for the producers and so somewhere along the line there’s got to be a good balance between supply and demand, otherwise the numbers just don’t work,” Mr Saputo said.
Saputo is the parent company of Warrnambool Cheese and Butter, after it took a majority stake in the business in 2014 and bought it outright earlier this year.
Mr Saputo said WCB was aiming at a closing price of $5.90 a kilogram of milk solids, following its opening of $5.50kg/MS and he hinted that if there were further market improvements the farmgate price could move higher.
WCB has picked up 250 million litres of milk in the past year.
Saputo also operates in Canada, the US and Argentina but he said Australia from a regulatory perspective was one of the most favourable countries it had operated in.
He said that to export into emerging markets, prices had to be competitive and regulations had to be at a minimum.
“Countries like Canada have very heavy regulations and very little opportunity to export. Australia is much better than that.”
He said Australia was more competitive than the US on global markets and stable when compared to economic and political volatility in Argentina.
At the farmgate, WCB suppliers were relieved the processor did not choose to follow rivals Murray Goulburn and Fonterra, which cut the farmgate price late in the 2015-16 season.
Mr Saputo said step-downs were not viewed favourably. The opening price was the processor’s view of where it saw the market for the season and if conditions deteriorated “that should be on us, not on the dairy farmer”.
Some WCB suppliers have expressed concern about the price differential between spring and off-season milk and how this could negatively impact cashflow.
Mr Saputo said it was a matter that was “top of mind for suppliers”.
“See what is in the best interest of the dairy supplier, but at the same time also in the interest of WCB employees and stakeholders,” he said.
Source: The Weekly Times