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Lion to pay dairy farmers more

Milk processor Lion have said it will increase the price it pays to dairy farmers for some milk, but critics say it may be too little to late for some famers.

Lion agriculture procurement director Murray Jeffrey said yesterday that Lion would "significantly increase tier-two milk prices".

Lion will pay the equivalent of tier-one [contract] prices for all milk supplied from February to June 2013," The Newcastle Herald reports,

However, Bowthorne Dairy's Dallas Clarke said that with production of milk dropping, the outlook for most farmers was still grim.

Clarke said the extra money for farmers would "only be a few crumbs".

"It will be interesting what happens if it's still dry until Christmas and how the season breaks when it starts raining.

"If we get excessive floods again, there's no hope for having fresh milk in Sydney all the time, unless they have a train coming every few minutes from Victoria."

Jeffrey said Lion was "not worried about a milk shortage" and "this is a good news story".

"Forecasts suggest that once the spring peak has passed, our volumes will be closely aligned with demand," he said.

"This will allow us to pay for all the milk we receive at the tier-one base price in each region."

Australian Dairy Farmers Association President Chris Griffin told Food Magazine earlier in the year that the industry would 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.”

After Coles cut its retail milk price to $1 a litre in January 2010, and Woolworths decided to follow suite, the flow-on effects of the decision have continued to damage the sector.

“In NSW, my state, I see farmers being asked to sign contracts for three cents a litre than their previous contracts,” Terry Toohey, Australian Dairy Farmers Director said at the Food Magazine Leaders Summit.

“This will have astronomical effects on fund and profit margins.”

"In my case I'll have 40 per cent of my tier 2 of milk [purchased] at 18 cents [per litre].

"The cost of producing it is 40 cents [per litre].

"So, you start to look and say, I'm only one person, there are 800 dairy farmers in NSW alone."

The current practice is for milk companies to announce what is known as an Anticipated Full Demand (AFD) to Dairy Farmers Milk Cooperative (DFMC), which is bought at a somewhat reasonable price and referred to as Tier 1 milk.

Any milk deemed ‘surplus’ is then paid at a much lower price and referred to as Tier 2 milk.

However, the buyers of the milk produced on Australian farms are deliberately underestimating the amount of milk that each can deliver, meaning they are not obligated to buy a considerable portion of the milk they know a farm will produce at the reasonable price.

There is no transparency at farmer level as to what Tier 2 milk is being sold to other processors for.

"The retail actions are certainly impacting the dairy farmers in a negative way, this combined with the uncertainties and other factors [impacting] dairy or other farming, it's making it unattractive for the next generation,” Toohey said.

Earlier this year, Lion lowered the value of its dairy and drinks business by $1 billion, which it said was a direct result of predatory pricing by the major supermarkets.

“Persistent poor global economic conditions have seen a sustained period of low consumer confidence and increased saving activity in Australia," a Lion spokesperson said at the time.

"This challenging environment has been further exacerbated by short-term factors such as poor weather and natural disasters in Lion's key markets."

Lion’s dairy and drinks business, has suffered continuously increasing input costs and has labelled the fresh milk business "challenging".

"Continued discounting activity has caused a transfer of sales volumes from higher-margin branded products into private label and from the non-grocery channel to grocery," the spokeswoman said.

The Australian Food and Grocery Council’s chief executive Kate Carnell said the produce cuts have not been driven by supply chain competition or lower costs of production.

“If these current ‘price wars’ continue, the profitability of Australia’s food manufacturing sector, as well as farmers, will be eroded and the result could be a significant loss of both processors and producers,” she said.

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