Dairy industry facing more hurdles in 2012

While the story may have disappeared from the front pages, the dairy industry is still suffering and it doesn’t look like it will be getting better anytime soon.

The decision by Coles to drop the cost of its milk to $1 a litre last January sparked outcry from the dairy industry, who said the price was “unstustainable.”

Dairy farmers started leaving the industry in the midst of an investigation by the Australian Competition and Consumer Commission (ACCC) and Senate Inquiry which both cleared Coles of any wrongdoing.

Australian Dairy Farmers Association President Chris Griffin told Food Magazine this morning the industry will continue to suffer as a result of the milk prices.

“We know there’s been at least 30 leave the industry in Queensland alone, and the majority are sighting the uncertainty of milk prices as the reason.”

He said the instability in the industry will only worsen as the government implements the carbon tax and Murray Darling Basin plan.

“The carbon tax will also cause problems when it’s implemented on the 1st of July; we’ve done work to find the costs that will be incurred and they are largely electrical costs,” he said.

“The average increase for dairy operation will be between $5000- $7000, and that will be an overall direct increase in cost that will have to be passed on somewhere.”

Following the intense debate about the cost cutting by Coles and Woolworths and the ruling that $1 per litre was acceptable Food Magazine asked Griffin if the chances of the big two supermarkets increasing the price of milk to help with the increase in farmers’ costs would most likely be slim.

“That’s a question for Coles,” he said.

“We believe the tactic all along by Coles was just to get people through its doors, and since dairy products are in 97 per cent of consumers homes, it’s a draw card they’ve used.

“It’s always at the back end of the supermarket, so you have to walk through all the other products and displays to get to it, so it is simply a marketing ploy they’ve implemented at the expense of the dairy industry.”

When contacted by Food Magazine to find out if they would consider absorbing the cost increase, Jim Cooper from Coles said "we are not speculating about the potebtial impact the carbon tax will have on retail pricing."

The cost increase cause by the carbon tax will have to be absorbed by the farmers in the milk export market, Griffin told Food Magazine.

“It will have to be absorbed by the farmer because our price is governed by a royal export set price.

“Australia has come our ahead of the game in a way with implementing the carbon tax, but farmers can’t go to their overseas customers and saying ‘we need extra money because Julia has put on a carbon tax,’ the customers would just go elsewhere.”

Where the government’s Murray Darling Basin plan is concerned, Griffin says it will mean less water available for the same number of farmers in the region.

“Given that the government has a national food plan they’re trying to roll out and we believe the dairy industry is a massive part of that, we would like to consult with them about the plan,” he said.

“Australia has been very fortunate that we have been able to produce enough dairy products not only for domestic consumption, but also for export, which then generates wealth for the country.

“This plan is going to jeopardise that.”

“At this stage we say a certain amount of water has been taken out already and we need to have a strategic look, working with the government to see where it is going to come from in the future rather than using the ‘Swiss cheese approach’ currently being used.

“It means less water for the same amount of farmers, and maintenance costs will be higher because there are not as many people contributing to the maintenance.”

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