NORTHERN milk processors have opted to build a secure foundation for local supply in preparation for when the turnaround in global dairy prices comes, holding farmgate prices rather than following the big southern drops.
Farmers in NSW and Queensland supplying the liquid milk market have heralded the move as forward-thinking and a big step towards a far more optimistic outlook for dairying in their regions.
Lismore-based dairy co-operative Norco led the way by holding its northern price and only slightly reducing its southern price and Lion quickly followed suit.
Norco’s suppliers north of Telegraph Point will average around 57.03 cents a litre, while those farming down to Dungog will average 55.95c/l.
Lion’s Queensland opening weighted average milk price is just over 59c/l, NSW 53.7c/l and WA 54.7.
Parmalat will hold its price until at least December with the other announcements set to pave the way for minimal changes there.
While Southern milk producers are reeling from opening milk prices that fall well below the cost of production, those supplying the liquid milk market are breathing a sigh of relief.
Murray Goulburn, which not so long ago was the biggest payer, announced an opening price of $4.31 per kilogram of milk solids for Victorian suppliers, which equates to around 33c/l, a 5.6c/l drop.
Southern NSW MG suppliers will receive 46.7c/l.
According to the United Dairy Farmers of Victoria, that is well below the five-year average of $5.62 and the cost of production for most southern operations which is a little over $5.
It’s also below the $4.60 minimum expected and widespread rationalisation in the region is now forecast.
Fonterra opened at $4.75kg/ms, Burra Foods $4.50, Warrnambool Cheese and Butter $4.80 and Bega $5, but according to UDV, the reality for some farmers, particularly those with seasonal calving, is income will be as low as $3.90.
Queensland and NSW industry leaders said there had been great apprehension that northern processors would follow suit.
Queensland Dairy Organisation vice president Ross McInnes said the fact they didn’t provided a huge vote of confidence to farmers.
He said it was clear recognition by processors that had prices dropped, local supply would be lost and the availability of spare milk to ship north wasn’t guaranteed.
Dairy Australia has predicted a three to four per cent drop in production over the next year but the extent of opening price drops now has analysts believing that could be even greater.
Mr McInnes said the outlook for 2017/18 was much stronger with stocks of dairy production around the world starting to reduce.
A ‘knee-jerk reaction’ by northern processors now would have big implications on their ability to take advantage of that turnaround, he said.
Farmers also noted the impact of the strong consumer support for branded product in the wake the Murray Goulburn drama.
Mr McInnes said processors had clearly recognised the negative impacts of announcing a drop in price into a fresh milk market after that sort of support - reports were that average sales of branded product increased by as much as 15 to 20pc.
“If we get a decent season, which is forecast, combined with the holding of milk prices, dairying is looking much more attractive than it has in past five to ten years,” he said.
Peak NSW dairy industry body Dairy Connect’s chief executive officer Shaughn Morgan said the Murray Goulburn situation highlighted the need for reform to supply contracts and for a guaranteed level playing field.
Dairy Connect has secured commitments from both the Coalition and Labor for a ‘Chatham House roundtable’ involving a review of contracts and pricing reform in Australia’s dairy industry.
“Around 80pc of Australia’s dairy producers were plunged into financial shock when Murray Goulburn and Fonterra exercised their right to slash producer prices and claw back the difference between the higher historic price and the new price,” he said.
There were promising signs for dairy in NSW with the growth of small processors, the cold pressed raw milk release and the introduction of a buttermilk factory, he said.
There were also good opportunities for investments, especially in relation to China.
“The development of an instant milk formulae plan to supply China is one and we are also talking to people in the Philippines and other Asian Pacific countries,” he said.
Balancing act
AGAINST the backdrop of significant downgrades to farmgate milk prices in southern Australia, global oversupply and reduced demand from China, the holding of prices in the north is seen as a solid commitment to the future of the industry.
It is recognition of higher costs of production in warmer climates and the need to secure regional supply, industry leaders said.
The cost of producing a litre of milk in northern NSW and Queensland is generally accepted to be around ten cents above that in Victoria.
However, the minimisation of changes to farm gate prices would have been an extreme balancing act for northern processors.
Norco chairman Greg McNamara said the co-operative’s board challenged its management to find opportunities, savings and efficiencies right across the business to meet that goal.
Chief executive officer Brett Kelly said one of Norco’s commitments to customers and consumers was to build a milk supply pool to adequately service a growing business in Queensland and Northern NSW and a growing footprint in the Sydney market.
“To achieve this, it is our belief we need to maintain milk prices at consistent market levels to ensure members have a high level of confidence to make the necessary investments on farm,” he said.
