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Jersey Australia wants to see change with milk pricing
April 29, 2018

Jersey Australia has said the pricing system is outdated, complex and confusing. 

It wants a greater emphasis on the value of milk solids.

Jersey Australia (JA) board member Jane Sykes, Ringarooma, Tasmania, said two reports showed pricing systems didn’t necessarily represent the current market value of solids, butterfat and protein.

“We want price parity between butterfat and protein,” Ms Sykes said.

“The fairest and simplest thing to do is make it a single price for milk solids, rather than individual ratios for fat and protein.”

Holsteins generally had the lowest fat and protein content, while Jersey and Guernsey breeds had the highest, but Ms Sykes said that was not always the case.

“There are high component herds out there, of every breed,” she said.

Ms Sykes said the JA reports found higher density, or component, milk was cheaper for processors to cart and handle.

It was cheaper by 8.5c/kg Milk Solids (kg/MS), or 0.6c/litre of milk.

“There is value in high-density milk which is not being recognised in the current payment systems, to the disadvantage of Jersey farmers.”

Extensive consultation:
But the Australian Dairy Products Federation (ADPF) said while processors had work to do to rebuild trust and a more transparent farm gate milk price (FMP), any change could only follow extensive consultation.

“Pricing structure is one item on the ADPF’s agenda,” ADPF president Grant Crothers said.

“The issue of reflecting the market value of components has received some attention in recent years, with changes in price ratios, but remains largely divorced from the market.

“This is probably for the best as there has been enough volatility and confusion around FMP in recent years.

‘This has all but now past.”

Mr Crothers said the ADPF understood the complexity and sensitivity around FMP component pricing.
It would not like to see change without considerable consultation and planning.

“There are generations of genetics and on-farm practices involved and finely tuned business models that are vulnerable to change,” Mr Crothers said.

FONTERRA CHANGE:
Fonterra has also announced it was changing its milk fat to protein ratio, to better reflect the returns of fat and protein on the international market.

Fonterra’s Farm Source general manager Matt Watt recently wrote to suppliers, telling them the change had followed feedback from farmers and consultation with the Bonlac Supply Company board.

“As you know, fats have been attracting a higher commodity price compared to proteins in recent seasons,” Mr Watt said.

“While the price of milk fat has gone up, skim milk powder (SMP) has reduced in value in global commodity markets.

“This is partly due to the European dynamic, where increased production and SMP stockpiles have put pressure on prices, meaning that the price of milk fat has increased to attract supply.”

Moves towards butter, as healthier, had led to shortages and pushed up the price.

“We have a responsibility to reflect these global market signals back to the farmgate milk price, and this change moves us more in line with the market and industry, ”Mr Watt said.

From July 1, Fonterra was altering the ratio of its milk fat and protein payment to suppliers for the 2018/19 season from 2.5 x Fat = Protein, to 1.9 x Fat = Protein.

“The change in ratio will drive an increase in the value of fat in your milk and a correspondingly lower protein value in your milk,” Mr Watt said.

CHANGE QUERIED:
Gippsland Fonterra supplier Marian Macdonald said she wasn’t sure if changing the ratio would make milk pricing less confusing.

“That’s like changing the price of a mobile phone plan from one price point to another,” Ms Macdonald said.

But she applauded Jersey Australia for raising the question.

“It keeps the discussion surrounding the milk price alive.”

She said because there had been no significant change to the milk pricing system for many decades “obviously it’s well overdue.”

“All options should be put on the table, rigorously discussed and analysed,” she said.

“At the end of the day, we’re all in the same leaky boat and we all have to work together to make sure the stainless steel, the processors have invested in, is filled.

“But the only what that’s going to happen is if people have confidence in the milk price.”

Ms Macdonald said pricing was complex and based on more than component parts of fat or protein.

“Everyone has a different supply pattern and milk components,” she said.

‘Two neighbouring farms might supply the same factory and have an entirely different price.

“But good on Jersey Australia for raising it.”

POSSIBLE DISADVANTAGE:
Carpendeit’s Donna Edge, who runs Holsteins, said changing the way the price was paid price might disadvantage those with non-Jersey herds.

“The milk companies have paid us to produce protein,” Ms Edge said.

“We have bred cows to produce protein and you can’t change that overnight.

‘To a certain degree, you can change it in diet, but it’s going to take several generations to breed high fat and high protein back into cows.”

“Cows are not like a tap, you can’t turn them on and off, willy-nilly.

ALL BREEDS:
Ms Sykes said the current payment systems were set up in the late 1980’s.

“It’s a bit ludicrous.

‘There are not many things that have stayed the same since the 1980’s.

“At the time, fat was seen as the market of last resort.

“Fat was seen as evil, yet we are still being paid as thought butterfat is the market of last resort.”

Ms Sykes said the market had changed significantly in the last five or six years.

She said there was also no correlation between the current pricing structure and the global market.

Jersey Australia president Chris MacKenzie, Timboon, said the review was needed because Jersey and other high component herds were being unfairly disadvantaged.

“We believe this issue needs to be taken to the industry as a whole because payments are unbalanced and nothing has been done about it since competition payment came in,” Mr MacKenzie said.

“There is growing demand for butter but nothing has been done to reflect that in prices for farmers.”

“This is about fairness for everyone.”

 

Source: Stock and Land



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