At the first United Dairyfarmers of Victoria milk structure meeting at Leongatha last Thursday night, dairy consultant John Mulvany told about 50 farmers there needed to be “total agreement that milk price structures are crap”. He said this message needed to be made clear by farmers to processors.
Mr Mulvany explained how the current milk pricing structure was affecting dairy farms, by explaining that up to nine years ago the variation in price between 46 farms supplying major processors was 20 cents a kilogram of milk solids. Now it is up to 75c/kgMS.
“The complex payment and inequitable systems do not encourage efficient and low cost dairy production,” he said.
Mr Mulvany criticised the “complex” linkage between months known across the industry by a number of names such as milk supply ratio payments or flat milk incentives. These systems combine farmers’ production from a variety of months to make up a percentage of the annual production. The calculation is confusing, with the practice pushing risk back to farmers.
As part of an industry “think tank” a payment system was developed. This system had the same price for all months except the price for September-November was about 25 per cent less to represent the decline in the cost of production during this time. Another key point was capping and reducing payments.
Mr Mulvany also called for weighted average price quotations to be replaced by a median price and for processors to report a price range.
He said a weighted average was a “black box formula”, but a median price was “non-negotiable, easily understood and can’t be spun”.
UDV representative Damian Murphy said the UDV would advocate for a milk price structure that included independent months, a “9/3 system” in reference to the spring pricing and productivity payments capped at 8-10 cents a kilogram of milk solids.
It also sought a median milk price reporting by processors and processors to report a price range.
Mr Murphy called for farmers to “close the gap” of knowledge to be able to challenge processor field staff and executives about creating simpler payment structures.
KEEPING IT SIMPLE
What the UDV is calling for:
Simple payment formula
— Remove the complexity
— Increased transparency
— Know what your milk is worth
— Avoid incentives forcing risk-taking behaviour
Realistic spring differential
—Remove shoulder-season incentives
— Return decision-making to the farmers themselves
— Allow efficient use of spring growth
— Remove linkage
— Allow seasonal systems
— Focus on efficient feeding
Decreased productivity bonus
— Sharing equitable wealth
— Support new farmers
— Remove weighted average
— Provide a better understanding of where a farm businesses sits on quoted prices
—To establish how far each farm business is from the reported price
● Source: UDV A simpler pricing system
By: SIMONE SMITH
Source: The Weekly Times