During the height of the drought in 2018, supermarket chain Woolworths led the way and introduced a drought 'levy' to support dairy farmers during that difficult time.
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Industry dairy bodies like eastAUSmilk supported this initiative and applauded Woolies and its CEO Brad Banducci for leading the way.

The levy was intended to be a temporary measure and to support dairy farmers and their families who were facing difficult financial times, with farm-gate prices that were (in many instances) below the cost of production.

This extra payment for their nutritious milk ensured that many dairy families did not need to sell or leave their farms and were able to continue to support their local rural and regional communities.

Woolworths has announced that the ‘on pack’ drought levy label will be removed from its 2L and 3L milk in the coming months, while “the additional 10 cents per litre will continue to flow through to farmers until the end of the milk year”.

The processors (and their dairy farmer suppliers) who are directly impacted by this announcement are Bega, Fonterra and Lactalis. Their decisions will directly impact the way this announcement is perceived and the long-term impact it will have upon the dairy value-chain.

Lactalis has indicated to its dairy farmer suppliers that it will continue to provide this payment as part of its farm-gate price until June 2022 while continuing to review and monitor for the price to be included into the future. Its farmer suppliers will not be ‘out of pocket’ for this period and will continue to receive this amount. This is a positive statement and the other processors will hopefully follow and make similar assurances.

While the current dairy conditions are generally positive, there still remain significant issues confronting the dairy industry. This includes issues associated with market failure that have not been addressed and which were highlighted in recent reports such as those published by the ACCC. These matters continue to be of concern to the industry value-chain generally.

There is the further impact that increasing input costs are having upon the farm and the farm-gate price (you need only refer to the increasing cost of fertiliser and diesel, which have doubled in price over the past 12 months).

The drought levy increase that retailers provided to dairy suppliers was an important component to ensure the ongoing viability of many dairy farms over the past years. Assurances from processors (such as that given by Lactalis) that dairy farmers’ monthly milk cheque will not diminish in actual terms will be vital.

This will also be a test for the Mandatory Dairy Code and the ‘good-faith’ provisions that are a part of the negotiations between processors and their suppliers.

It has been suggested that the Code should also be extended to include retailers and this may be a time for such discussions to be reconsidered. With the upcoming federal election, there may be no better time for matters such as this to be raised.

Questions such as how the dairy industry can remain viable for future generations of dairy farmers need to be addressed and the timing of the Woolworths announcement may provide that opportunity.

Be assured though that dairy farmers will continue to provide fresh milk so that the community can continue to buy nutritious milk and dairy products from their supermarkets and the dairy cabinet.

Fonterra says the outlook for dairy is positive, and the co-operative has released an upbeat forecast for its full-year profit.

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