News / Blog

Dairy Farmers Milked in Australia
May 11, 2016

Mark Billing wants salaried city workers to imagine walking in the shoes — or muddied boots — of Australia’s dairy farmers.

Last week, about 3800 dairy farmers in Victoria, Tasmania and South Australia — two thirds of the industry — were told their incomes were about to crash.

First, major dairy processor Murray Goulburn and, then, Fonterra, announced the price they paid their farmer-suppliers would immediately drop from between $6 and $5.60 for every kilogram of milk solids to just $4.75-$5 a kilogram, equivalent to as little as 35c a litre of milk.

But the sting was yet to come.

Not only would prices be slashed immediately, but they would be backdated or imposed retrospectively to the beginning of the 2015-16 financial year or milk season.

It meant that for every litre of milk sold to Murray Goulburn and Fonterra during the past 10 months — for which farmers had been paid 42c-45c a litre — they would now have to pay back or “owe” their milk companies 10c a litre, because of “overpayment”.

The average “debt” that its farmers now supposedly must return to Murray Goulburn — a giant farmer-owned co-operative — is about $120,000.

Murray Goulburn and Fonterra offered to help dairy farmers pay back these so-called overpayment debts by converting them into low interest loans, repayable after three years.

The only alternative, explained Colac dairy farmer and Fonterra supplier Mr Billing, was to erase this 10-month accrued “debt” by him accepting 14c a litre for the next two months, until July.

With 500 cows calving and coming into milk, hay and grain still being fed out to cows until it rains and grass grows again, one fulltime and two part-time employees to pay, and paddocks having to be re-sown and fertilised after a record dry 18 months, a devastated Mr Billing said no farmer should be forced into such a position. The average cost of production for a dairy farmer like Mr Billing, not reliant on irrigation to grow crops and grass, is normally about 36c for every litre of milk his 500 cows produce.

But in the past year, with little rain and no grass, feeding costs have turned that break-even figure into about 42c a litre, equivalent to the milk price Fonterra and Murray Goulburn had been paying all year until the massive “adjustment” or “step down”.

“No one could survive on 14c a litre; it’s a ridiculous proposition — we would be losing 22c to 30c for every litre of milk we produced on the farm,” Mr Billing said.

“Can you imagine what would happen if any employer in the city said to his workers that he had just decided he had been paying them too much since last July, and that now they had to give the money back?”

The massive price drop affects the major dairy producing states of Victoria, Tasmania, southern NSW and southeast South Australia hardest, since more of their milk is exported rather than consumed locally. Farmers have also been warned the price could fall even lower in July for the 2016-17 year, and may artificially be held lower for another two years as Murray Goulburn tries to recoup the $40 million of profits it had “lost”.

Murray Goulburn processes more than one-third of Australia’s 9.6 billion milk pool and is the benchmark milk price setter.

Ostensibly, the two major companies have slashed prices because of profits downgrades or profit miscalculations caused by global dairy commodity prices that had plummeted in the past year.

But farmers like Mr Billing question why the profit crash wasn’t called earlier; why supposed falling demand from China hadn’t been flagged sooner; why the milk price adjustment was made retrospective and if, in NZ-owned Fonterra’s case, Australian farmers are penalised because so much of the company’s dominant NZ output is low-valued bulk milk powder for export.

Raising further questions about the two companies’ harsh actions are that three other major dairy processors, Bega Cheese, Warrnambool Cheese and Butter and Burra Foods, who all export as well as supply domestic markets, have held the milk price they pay their farmers at the previous $5.60/kg MS, or 42c a litre, high.

Farmers also ask what happens to the GST they paid on their milk income over the past 10 months, and how the taxman would treat the average $120,000 of income they had supposedly been overpaid, spent and now had to reimburse.

The Billing family have decided that after four generations they will not stop being dairy farmers or sell their 240ha fertile farm.

But neither can cows suddenly stop being milked, nor feeding costs pruned to nothing overnight.

“It’s a reset for us. We have to get through this next difficult period because I think the Asian appetite for dairy will continue to grow and we must benefit in the end,” Mr Billing said.

Source – The Australian


Summer 2018