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Smoke and Mirrors in Australian Dairy Pricing Erodes Hope
July 5, 2016

There’s a shadow across Australia’s dairy industry and it’s darker than many have ever seen.

It was hard to imagine morale could drop lower than it did following price cuts in April and May — and the application of retrospective price “claw-backs” — but it has.

The reality is there’s a difference of up to $1 or more a kilogram of milk solids between what some dairy farmers will be paid for milk this season. That’s without factoring in small players with contracts.

For many staring down the barrel of a season price less than $4.50kg/MS, it is less than break-even. Balancing a budget at $3.70kg/MS upwards — yes, there are some farmers in this boat — is inconceivable. For those on more than this — $4.80-$5kg/MS — a good season will help them make a go of it, but it will be an incredibly tough year.

Putting that into perspective, one farmer told me they lost about $200 a day, and that’s a relatively small operation. When the numbers don’t stack up it puts stress on families and communities. The flow-on effect is monumental.

Add to this that many dairy farmers now have no trust in what they are being told by milk factories, particularly Murray Goulburn and Fonterra, the two majors that cut prices last season. Both have put out a public forecast closing price, but given the opening price target for this season was later slashed, few have any confidence to budget on these figures.

Even the most optimistic of farmers are questioning income estimates. Instead of taking them at face value, they are looking for where a company has dudded them.

Given the variety in prices offered — including prices for new suppliers, those who paid loans, those who didn’t and the fictional “weighted average” — it’s not hard to understand why farmers are suspicious.

Smoke and mirrors have always existed with milk prices, but with prices at less than break-even, the stakes are higher than ever.

By: Simone Smith
Source: The Weekly Times



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