Dairy industry | Changes help chart new dairy direction

The proposed State dairy plan may remove some of the uncertainty that has plagued the local industry for the past six years – blamed by dairy farmers on mixed messaging previously coming from processors – and potentially may stop the local dairy industry shrinking still further.

Just as the previous two years for the dairy industry were marked by preparation and introduction of the national Dairy Code of Conduct – now bedded down, the code allowed some WA dairy farmers to change which processor they supplied with milk in the past year.

2021 may well be remembered for a start on a State dairy plan.

WAFarmers’ dairy council president, Forest Grove farmer Ian Noakes, along with its past president, Benger farmer Michael Partridge, in January at an industry roundtable with Regional Development, Agriculture and Food Minister Alannah MacTiernan, impressed on her that WA’s dairy industry was different to dairying in the Eastern States and needed different considerations.

They initially argued for a retail levy on milk that would return more money to dairy farmers who, unlike their Eastern States’ counterparts, had few alternative options for selling what they produced.

They got a sympathetic hearing, but astutely picked up on Ms MacTiernan’s reticence to back direct market intervention like a retail levy.

So they changed tack and swung their support behind the minister’s preferred alternative of a working group to get dairy farmers, milk processors and, maybe, even the major supermarkets – they sell 80pc of retail milk and dairy products after all – in the same room for talks on the future direction of the local industry.

Preparation of a five-year plan – the dairy farmers representatives involved in discussions hope it will evolve into a rolling plan revisited and updated regularly to suit changing circumstances – got the nod from Ms MacTiernan and others at the roundtable and a working group was proposed to put together a draft for industry comment by the end of the year.

For the WAFarmers’ representatives, it took a frustratingly long time to get the working group up and running, but eventually in July it came together and they were joined by Western Dairy representatives – then chairman and Jindong dairy farmer Mr Evans and then vice-chairman and Busselton dairy farmer Robin Lammie – along with Dairy Australia representatives, meeting regularly with Department of Primary Industries and Regional Development (DPIRD) officers and consultant Brad Weir.

Representatives from three of the four main milk processors – Brownes Dairy, Masters Milk producer Bega Cheese and Harvey Fresh owner Lactalis Australia – also joined the working party.

Because it now buys milk directly from 10 WA dairy farmers and has that milk processed under a toll arrangement with Bega, Coles is considered both a milk processor and a retailer, but has not been involved in the working group at this stage.

Dairy farmers attending Western Dairy’s Spring Forum at the end of the year were told a draft plan for WA’s dairy industry is due to be circulated for comment early in the new year.

Dairy Australia’s December Situation and Outlook report served to highlight why a dairy plan is so important for the WA industry.

“Following a year of close to record returns, conditions remain supportive for farm profitability,” the Situation and Outlook report claimed as the national dairy industry overview.

“Global dairy markets are contributing to this promising outlook, as commodity prices continue to rise,” it claimed.

That might be the case for Eastern States’ farmers, but increased dairy sales into South East Asia, the Middle East and North Africa regions have little benefit for dairy farmer profitability in WA, where export volumes are tiny and the industry services mainly a ‘white milk’ – as in fresh milk – market.

None of the processors in WA are set up or have sufficient excess raw milk to take advantage of the export markets that New Zealand, for example, has difficulty servicing.

There is no drying plant in WA to produce milk powder for export to take advantage of Asian market demand, most particularly the seemingly insatiable Chinese demand for Australian infant formula.

Also, according to local farmers, returns from dairying in WA in 2021 were not “close to record” like those in the east.

While the 2020-21 season here was very good, with above-average late summer and autumn rains keeping pastures growing well into this year and reducing reliance on conserved or bought-in feed, financial returns from producing milk were little better than previous years this year because of little-changed farmgate prices.

Since April Mr Noakes – re-elected president during the year to continue heading WAFarmers’ dairy council – has been pointing out the WA retail price of fresh milk was seven cents a litre less than in any other State.

“We want to know why,” he has said on several occasions.

“Because of that (lower retail price), the money coming through to processors from retailers is less.”

Mr Noake’s inference was that the lower margins for WA processors from major supermarket retailers, controlled income flow down the supply chain and ultimately meant lower farmgate prices for WA dairy farmers.

“We are being penalised (on price for supplying milk in WA) by our own efficiency,” Mr Noakes said.

The previous year Milne Feeds’ sales manager Dean Maughan, an industry veteran, having worked on the family farm, for DPIRD and then a milk processor before moving into cattle feeds, had ventured his opinion a power shift was starting to happen within the WA dairy industry.

A reducing number of dairy farms – down from near 160 six years ago to about 130 at the end of this year – producing less total volume of milk in WA as numbers dwindled would, over time, transfer industry power, Mr Maughan had postulated to Farm Weekly.

The position of power in being able to influence pricing decisions, would gradually transfer first from processors and eventually from retailers, to dairy farmers who controlled the volume of milk available to the retail market, he said.

Signs on the dairy cabinet in a Coles’ South West supermarket right at the start of 2021 stating Coles could not guarantee all of the milk in its own-brand milks came from WA, was a sign Mr Maughan’s opinion might be spot on the money.

Coles ended up trucking two tanker loads of milk more than 2600 kilometres from Adelaide to Perth to meet increased demand for milk over Christmas and the new year and to overcome a temporary shortfall until the final two of its 10 farmer suppliers finished contracts with other processors and were able to start supplying it with milk later in January.

In February, Bega completed its $534 million takeover of Lion Dairy & Drinks, which included the Bentley processing plant for Masters Milk and inheriting 19 WA dairy farmers who had chosen to stay with Lion the previous October rather than switch to supplying Coles direct.

Bega Cheese executive chairman, southern New South Wales dairy farmer and Bega milk supplier Barry Irvin moved quickly to reassure the 19 WA suppliers their existing contracts would be honoured.

“Bega Cheese has a deep history in the co-operative movement and highly values its relationships with dairy farmers, both existing and new,” Mr Irvin said.

But the WA dairy industry basically had to wait until June, when processors are required by the Dairy Code of Conduct to publish examples of their standard-form milk supply agreements, to get an idea of the monetary value Bega placed on its WA supply relationships.

While not largely different from what other processors were offering, the Bega agreements were good enough to attract some new suppliers to them after June.

For some, the attraction was supplying an Australian-owned dairy processor and producer with a proud and patriotic tradition – Bega had, after all, returned the Vegemite brand to Australian ownership – and it has a track record of making a success out of businesses previously seen to be struggling.

In May Western Dairy’s annual Dairy Innovation Day made a successful return, after being cancelled the previous year for the first time in 20 years due to COVID-19.

First-generation dairy farmers Neville and Elaine Haddon and their son and daughter-in-law Garry and Tiffany, welcomed about 400 people to the 21st Dairy Innovation Day held on their Sabina River dairy farm, the biggest dairy enterprise in the Busselton region.

In his opening remarks Western Dairy’s then chairman Mr Evans, one of WA’s most experienced farmers in dairy politics – called on dairy farmers to join him in challenging processors to declare their medium and long-term commitments to the local dairy industry.

He said WA dairy farmers were some of the most efficient milk producers in the country and should be confident about their future.

“We’ve got everything going for us, yet, in the farming community, there is a serious lack of confidence in the future,” Mr Evans said.

“To my knowledge there has only been two new entrants to the (WA) dairy industry in the past seven years.

“There have been several occasions in the past five years where continuity of farm (milk supply) contracts have been threatened (by processors not wanting contracted milk volumes).

“About a quarter of farms have an exit plan prepared and there are 15 farmers not encouraging family successions.

“With this mind, I am asking farmers here today to join me in challenging our processors to deliver consistent-quality medium and long-term commitments to the industry in the future.

“Maybe if they did that, then maybe those good farmers might think more positively about the future and encourage their children to chase their dreams, knowing there will always be a market for milk.”

Mr Evans’ outburst may well have had some impact on the slow pulling together of a working group to begin preparation of a WA dairy plan.

By the WAFarmers’ annual dairy conference in July, farmers and industry stakeholders were told that Brownes, Bega and Lactalis had signed memorandums of understanding to join the dairy plan working party.

In opening the conference Ms MacTiernan urged dairy farmers to focus on the future and not dwell on the past.

“I know that this is an industry where often there has been a focus on the past and revisiting the deregulation debate, but I think we do need to move on,” Ms MacTiernan said.

“A very positive thing to come from developing a dairy plan is getting the processors in the same room (with farmers).

“I like to think that the processors aren’t the enemy of the dairy farmers, that you have a destiny that is tied together and we do have to move beyond the history to make sure we have a very constructive relationship for the mutual benefit of both.

“You’ve got a way to go to that next step to get the retailers in the room – but I think we’re certainly on the right path.”

One of the local industry’s most controversial figures in recent years – seen to be a focus for dairy farmer negativity and their pointing to what had happened in the past as a warning for the future – retired during the middle of the year.

As its chief executive officer Tony Girgis had headed WA’s oldest dairy company Brownes Dairy for seven years, through a change of ownership to a Chinese dairy processor parent company and one of the most turbulent times in the local industry since it was deregulated in 2000.

While widely experienced in manufacturing and something of a company ‘turnaround’ expert, Mr Girgis had no dairy experience when he was appointed to the CEO position at Brownes.

His first move, to close Brownes’ cheese factory at Brunswick – it was reopened last year – confirmed his lack of dairy experience for many because cheese making had absorbed excess spring flush milk contracted to the company.

But it was one of his next moves that caused white-hot anger among dairy farmers.

Brownes declined to renew the contracts of its five best milk suppliers who were paid more for their milk than others, a move that ultimately forced one of them to leave the industry early.

Many dairy farmers interpreted that move as being designed to intimidate them.

Brownes’ director of sales and marketing and one of the people behind its rapid introduction last year of a popular ‘Milko’ dairy home-delivery service in response to COVID-19 lockdown, Natalie Sarich-Dayton was subsequently appointed Brownes’ first female CEO.

During the year Brownes also had the unwanted distinction of becoming the first WA dairy processor to pay a penalty for not strictly complying with the Dairy Code of Conduct requirements.

The Australian Competition and Consumer Commission, which administers the code, alleged some Brownes standard-form milk supply agreements published for the first time the previous year, had failed to include a supply period end date.

There was more bad news for Brownes in July when Lactalis and its local processor Harvey Fresh won from it new contracts to process and package Woolworths own-brand milks in WA for the next five years from January 1 next year.

Lactalis also won the contract from Brownes to process milk bought by Woolworths directly off the Noakes family at Forest Grove and the Evans family at Jindong for its Farmers Own brand milk.

The change of processor brought Woolworths’ WA own-brand milks into line with Eastern States where its own-brand milks are processed by Lactalis.

It was also a year of change at Western Dairy.

In March Western Dairy welcomed Julianne Hill, who came with a strong agriculture background and engagement with farmers, as its new regional manager.

But in July it lost extension officer for the past seven years and organiser of its acclaimed recent annual Dairy Innovation Days, Jess Andony.

During part of her time at Western Dairy Ms Andony, 27, was also Young Dairy Network co-ordinator and helped establish the WA Young Dairy Farmer of the Year Awards.

She also co-ordinated disaster relief for dairy farmers affected by the 2016 Waroona-Harvey bushfires for Western Dairy, helping earn her a community award.

Ms Andony joined Milne Feeds as understudy to Mr Maughan.

Her replacement as Western Dairy extension officer is India Brockman.

At Western Dairy’s annual meeting at the end of November Mr Evans retired from his second stint as chairman and Robin Lammie, who had been vice-chairman since 2019, stepped up.

Mr Lammie, who runs a 650 cow operation at Busselton with wife Betty, son Wes and daughter-in-law Sarah, was first co-opted onto the Western Dairy board in 2018 to fill a vacancy and was elected for a full three-year term later that year.

Andrew Jenkins, who with wife Claire runs a 700-cow dairy farm at Denmark, was elected Western Dairy’s new vice-chairman.