Higher supermarket prices for milk won’t necessarily help farmers

A fall in the farm gate price of milk and the pain felt by dairy farmers as a result, has many pointing the finger at supermarkets for discounting the price in the so-called “milk wars.” However the suggested solution of raising the price we pay for milk to pass on more profit to farmers is misguided.

Supermarkets have been driving down the cost of basic goods like milk since 2011. But the actual underlying culprit for the fall in prices has been the global glut of supply relative to demand driving down the world price, with only a partial offset from the decline in the Australian exchange rate.

Others have advocated for a return to the regulation of the 20th century with a domestic price set at a premium, or retailers selling branded milk at a premium and returning a share to dairy farmers. In reality, the likely income gain from increasing prices for domestic milk sales would be small.

Australia’s current industry policy is to let market forces set prices, investment and employment across different sectors and industries, rather than government “picking winners” and subsidising selected industries. Setting prices for the dairy industry, would be a return to the “bad old days” with a risk of a decrease in farm productivity.

Market Context

About 25% of farm milk production goes to fresh milk sales for domestic consumption. In turn, about a half goes to supermarkets where the store brands, sold for a dollar a litre, account for a bit over half of all supermarket sales. Some branded milk sells for nearly double the store brand milk.

If more people switched to buy a more expensive brand of milk, how many would it take to make enough returns to save dairy farmers? At the moment the maximum amount of milk sold for a dollar a litre would represent about 8% of current farm production.

The remaining 75% of farm milk is used to manufacture a range of products, including butter, cheese, skim milk powder and whole milk powder. Roughly half of the butter and cheese is exported, and 70% of the milk powder. Australia imports cheese as well as exports. The Australian dairy industry depends on the world market for much of its production.

Another aspect that determines the returns for dairy farmers is the world price for manufactured dairy products, adjusted for movements in the Australian exchange rate. If supermarkets raised the farm gate price of milk above that which other countries pay for milk products, processors would switch from manufacturing these products to processing milk instead.

By the same argument, if some retailers are paying farmers above the export parity price, competitors will bid milk away from exporters and undercut the high payers to drive prices back to export parity. That is, the export price provides both a floor and a ceiling to the price which supermarkets can negotiate.

Australian dairy product exports represent a small share of world trade of dairy products, and a very much smaller share of world production. While it would be an oversimplification to say Australia doesn’t have a stake in setting the global dairy price, a 10% or 20% increase in Australian exports would require a very small export price reduction.

A return to ‘the bad old days’

Set prices for dairy products, and other agricultural products, were phased out as a part of economic reform in the 1980s and 1990s for a more productive economy and the reasons for this remain valid today.

Setting a price for domestic sales, in this case milk, above the export price leads to a battle between different parties and lobby groups as to what price to set, it may also influence consumers’ decisions as to what they buy and arguably some more than others. It could also shift more resources on farms into the dairy industry, chasing a higher price and away from other types of production (which are set by a global price) such as meat or horticulture.

For those dairy farm households facing poverty as a consequence of the slump in world prices, it is more direct and effective to provide direct household support than to artificially increase the product price for all dairy farmers.

The Conversation

John Freebairn, Professor, Department of Economics, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Image: ninemsm.com.au

Nestlé collaborates with DBV on diagnostic tool for cow’s milk protein allergy

Nestlé Health Science today has entered into a strategic collaboration with DBV Technologies aimed at developing and bringing to market DBV’s innovative patch-test tool for the diagnosis of Cow’s Milk Protein Allergy (CMPA) in infants.

CMPA is a difficult to diagnose condition, which impacts up to 2-3 per cent¹ of infants and young children during a critical stage of their development. DBV will leverage its proprietary Viaskin technology platform to develop an innovative, ready-to-use, standardized atopy patch-test.

Today, CMPA is often missed in the primary care settings due to the non-specific nature of symptoms associated with the condition, such as eczema, reflux, constipation, diarrhoea, crying and others.

In the future, DBV’s patch-test will enable early and accurate diagnosis of the condition, leading to early nutritional intervention, thereby creating a strong fit with Nestlé Health Science’s nutritional solutions that helps meet the needs of babies and children with food allergies and intolerances (Althéra, Alfaré, Alfamino).

Under the terms of the agreement, DBV grants Nestlé Health Science exclusive worldwide commercialization rights of DBV’s diagnostic tool. Nestlé Health Science will make an upfront payment of EUR 10 million. DBV will be responsible for the development stages, including industrialization and regulatory submissions. Moreover, DBV is eligible to receive development milestones, and if approved, sales milestones and royalty payments on sales.

Reference:

  1. Høst A. Frequency of cow’s milk allergy in childhood. Ann Allergy Asthma Immunol 2002;89(Sup1):33-7

‘Cold-pressed raw milk’ to be sold in NSW

Sydney company Made by Cow will this week start selling unpasteurised milk that has undergone a high water pressure treatment to kill harmful bacteria within it.

The SMH reports that the company has obtained the approval of the NSW Food Authority to start selling the product.

The Authority said in statement it had approved HPP as an alternative to heat pasteurisation for killing harmful bacteria in milk, though it added that it did not endorse any products.

According to the company’s founder Saxon Joye, the product is sourced from one herd of jersey cattle.

“Good herd management, hygienic milking techniques and the cold pressure method have meant we can put 100 per cent safe, raw milk onto supermarket shelves,” he told the SMH.

“The bottles of milk are placed under enormous water pressure, squashed in about 15 per cent, to remove the harmful micro-organisms.”

Despite the fact that some people claim raw milk is more nutritious than pasteurised milk, it is illegal to sell it for human consumption in Australia.

The issue came to a head in 2014 after the death of a three-year old who drank raw milk.

“This process allows people to enjoy the natural, tasty and nutritious goodness of raw milk, without resorting to the use of heat pasteurisation or homogenisation,” Joye told the ABC.

Apart from this new product, all other milk sold for human consumption in Australia has been pasteurised, or briefly heated, to kill bacteria.

The view that pasteurising milk detracts from its nutritional benefits is contentious.

CSIRO food microbiologist Narelle Fegan told the ABC there is “no evidence that the health benefits of milk are substantially compromised by pasteurisation”.

The product will be sold through Harris Farm supermarkets and and About Life health shops.

Image: SMH

Dairy avoidance reaching dangerous levels, especially for women

A study has found for the first time that one in six adult Australians are choosing to avoid milk and dairy foods, the majority without a medical diagnosis, leading to public health concerns for women in particular.

The survey, undertaken by CSIRO and the University of Adelaide, found that the vast majority of avoiders (74%) are making this choice to relieve adverse gastrointestinal symptoms such as cramps, bloating or wind.

Far fewer participants cited not liking the taste or because they thought it’s fattening for not including diary in their diets.

The study also revealed that the decision to avoid some or all dairy foods is influenced by a range of sources from outside medical practice such as the internet, media, friends or alternative practitioners.

CSIRO’s Bella Yantcheva, behavioural scientist on the research team, explains the significance of the findings.

“The scale of people restricting their diet without a medical reason is very concerning in terms of the public health implications, especially for women.

“It means there is potential for nutritional deficiencies or imbalances, or the risk that an underlying health condition could be going untreated,” she said.

Dairy foods are important for all of us, but especially for women owing to the calcium content, and foods from the dairy and alternatives group are important throughout life to reduce the risk of osteoporosis.

However, the study revealed that more women are avoiding milk and dairy foods than men.

These results follow the team’s similar findings on wheat avoidance, which showed around ten times as many Australians than diagnosed with coeliac disease are avoiding wheat-based foods.

The study reveals that even more people are avoiding dairy products and, in fact, that around one third of the respondents avoiding dairy foods are also avoiding wheat-based foods.

“The numbers show that cutting out significant, basic food groups isn’t a fad but something far more serious,” said Yantcheva.

According to the Australian Dietary Guidelines, dairy and grain-based foods are important for a balanced diet.

They contribute significantly to our intake of fibre, protein and a wide range of essential vitamins and nutrients, on top of calcium in dairy’s case.

“It’s not just about missing out on the food type being avoided and risking your health, but also possibly overconsuming other foods to compensate as well,” Yantcheva said.

The paper is published in this month’s issue of Public Health Nutrition.

 

Greens say milk floor price is an option

Greens leader Richard Di Natale has taken aim at Coles and Woolworths for selling milk for $1 a litre and indicated he may support a milk floor price.

As the ABC reports, Di Natale’s comments come as the fallout from the decisions of the two big dairy producers, Fonterra and Murray Goulburn to cut farmgate milk prices continues.

Murray Goulburn cut its price from $5.65 to between $4.75-$5.00 kgMS, while Fonterra cut its price from $5.60 per kgMS to $5.00 per kgMS.

“We need to decide whether we set a floor on it, I think that’s one option that’s up for debate,” Senator Di Natale (pictured) said.

“But the point here is we cannot continue to have a sustainable dairy industry while Coles and Woolies are ripping off dairy farmers.”

As the Australian reports, independent senator Nick Xenophon also indicated more regulation may be necessary.

“It should never have come to this; $1-a-litre milk price is not sustainable; you are all collateral damage in a five-year war between Coles and Woolworths,” he told a rally of dairy farmers in Melbourne yesterday.

“If we have to have an emergency levy put on milk, so be it.”

On Tuesday Agriculture Minister Barnaby Joyce announced a half-billion-dollar assistance package including concessional loans to help struggling dairy farmers. However, yesterday he rejected the call for regulation.

“If you put in a floor price, if that’s the Greens policy, I can understand the empathy behind that, but what happens is you end up with massive stockpiles of a product that you can’t move and the thing ends up collapsing and that itself creates a crisis,” he told ABC.

Image: The Age

Murray Goulburn saga has roots in deregulation

The history of the dairy cooperative Murray Goulburn and its farmer suppliers shows how a close relationship of trust has developed and been broken with the collapse of the farmgate milk price. Roots of the current crisis can be traced all the way back to the deregulation of the dairy industry at the start of the century.

Murray Goulburn was founded in Victoria in 1950 and grew steadily over the next two decades to become the nation’s largest dairy company by 1973. In its 2015 annual report
it recorded total assets of over A$1.84 billion and total revenues of A$2.88 billion. It holds a large portion of the dairy market, in 2016 it was estimated by IBISWorld to have just over 42% of the national market for milk powder and 31% of the national market for milk and cream.

Over half its revenue comes from exports, primarily into Asia. It’s also the nation’s largest buyer of raw milk, employing around 2,400 people and with approximately 2,500 members.

Deregulation and the “keystone” role of cooperatives

The deregulation of the Australian dairy sector started in 1999 and rolled out over the following year. It saw the repeal of existing state legislation regulating the supply and pricing of milk.

The impact of this deregulation was mixed across Australia but it led to the decline in the total number of dairy farmers, from around 10,000 in 2000 to about 6,061 in 2016. It is likely to fall even more over coming years.

Despite increases in the overall size of dairy farms, most remain small-scale, family owned businesses. Dairy farming requires higher levels of capital investment than most other agricultural sectors, with major expenses being automated milking machines.

Milk is now essentially a global commodity and dairy farmers are price takers. With the need to invest more into capital equipment, fuel and stock feed, profit margins in the sector have been squeezed.

Over the past five years the average profit margin for dairy farms has fallen. Any decline in the farmgate milk price will only put many producers into unsustainable losses unless they can increase economies of scale by having larger herds or lower input costs.

Another consequence of the deregulation of the dairy industry has been the decline in cooperatives. The Dairy Farmers Cooperative was sold to National Foods (now Lion) in 2008, and Bega Cheese demutualised in 2011 and listed on the ASX. Today there are about nine dairy cooperatives active in Australia, the largest of these are Murray Goulburn and Norco Ltd from northern NSW.

A dairy farmer feeds his cows on a QLD dairy farm.
Dan Peled/AAP

Cooperatives like Murray Goulburn are different from other businesses. The cooperative should be focused primarily on its members’ welfare and as such it is unusual for them to be able to satisfy the often competing interests of members as patrons and outside investors from the ASX.

A well-run cooperative can be sustainable and profitable. It can serve as a “keystone” business that helps sustain its members. Keystone businesses are those firms that serve as a major buyer or supplier for many smaller “niche” firms, helping to keep the smaller firms more sustainable for an entire industry.

The approach taken in terms of milk supply and pricing is an example. Since the dereguation of the dairy industry Murray Goulburn has effectively set the farmgate milk price across most of the Australian dairy sector. It also takes all the milk its members wish to supply.

This stabilising and coordinating or “keystone” role within the dairy industry has been a feature of Murray Goulburn since market deregulation. Given the size of the cooperative anything that might affect its long term operations will have significant impact on the Australian dairy industry.

The issue of trust in a cooperative

Cooperative enterprises are owned by their members who also have a trading or patronage relationship with them. What differentiates them from other businesses is the democratic governance of the business, with member-owners having a say in major strategic decisions.

Management of a cooperative is therefore more complex and the board and executive leadership team must maintain the trust and loyalty of the members to keep the business strong. They also need to balance the member’s interests as suppliers (patrons) and as investors, while encouraging them to see themselves as owners of the cooperative and members of a community of purpose.

The financial strength of the cooperative is only as important as the financial strength of its members. To survive the cooperative must maintain a clear social and economic purpose with the members’ interests first and foremost.

Gary Helou, then CEO, was part of a new management team brought into Murray Goulburn in 2011 to modernise and strengthen the cooperative’s leadership. However, his management style appears to have been more in keeping with that of a regular firm.

Recent revelations by Fairfax Media suggest that Helou and the senior management of Murray Goulburn had evidence of declining export sales as early as July last year. However, they continued to promise farmers a “guaranteed” high farmgate milk price and share price.

Although a capital restructure at Murray Goulburn was endorsed by the board it raised some concerns in the financial press and among former directors. The financial crisis that the cooperative has found itself in is something of a self-inflicted wound.

It has sought to “walk both sides of the street” with its ASX listing and overconfident pronouncements of keeping the farmgate milk price at around $6 per kg/MS.

Dairy farmers who are or once were members and shareholders have lost money. Many retired farmers who had their preference shares converted to the ASX listed ordinary shares have seen the value of their stock collapse. For their younger active counterparts the loss of share value is compounded by the lower milk price with many facing debts of A$100,000 to A$120,000.

Former CEO Gary Helou and former CFO Brad Hingle have departed Murray Goulburn leaving the cooperative’s board and Chairman Philip Tracy to face down angry farmers and shareholders, plus a class action led by legal firm Slater and Gordon.

Murray Goulburn’s members have been essentially turned from owners and members of a democratic community of purpose, into suppliers and investors whose share value is linked to the price of a litre of milk. That’s where the problem lies.

This is not necessarily the end of Murray Goulburn, however, they will need to regain the trust of their members and demonstrate that as a cooperative their primary focus is on the well-being of their farmer members.

As a business it must be frugal and focused on delivering its members the best prices at the lowest costs it can. Any investment and growth should be designed to provide its members with the best long term returns to their businesses at suppliers or buyers, not just to see the value of its share capital appreciate.

Of equal importance is the cooperative’s ability to keep its members loyal not just through the prices or dividends that it offers, but because they feel a sense of ownership and being part of a community of purpose that would be lost if the cooperative disappeared.

The Conversation

Tim Mazzarol, Winthrop Professor, Entrepreneurship, Innovation, Marketing and Strategy, University of Western Australia

This article was originally published on The Conversation. Read the original article.

Barnaby Joyce delivers half billion in assistance to dairy farmers

The Federal Government has announced a half-billion-dollar assistance package including concessional loans to dairy farmers dealing with the collapse of farmgate milk prices.

Murray Goulburn recently cut its price from $5.65 to between $4.75-$5.00 kgMS, while the other major dairy processor Fonterra cut its price from $5.60 per kgMS to $5.00 per kgMS. As a result, many dairy farmers are expected to leave the industry.

As the ABC reports, the assistance package announced yesterday by Agriculture Minister Barnaby Joyce (pictured) includes $55 million worth of concessional loans this year and $500 million in concessional loans over 2016-17 and 2017-18.

“The concessional loans will go as low as 2.66 per cent. They’re currently at 2.71 per cent.” Joyce said.

“Farmers will be able to borrow $1 million or half of what they owe, whichever is the lesser, so that they can assist themselves to get through this crisis.”

The package, which received bi-partisan support from shadow agriculture minister Joel Fitzgibbon, also included increased access to financial counselling services.

As News.com.au reports Joyce also announced that, if re-elected, the government would establish a commodity milk price index to provide the industry and producers with a better idea of expected global and local milk price fluctuations.

“The Coalition will consult with the industry on the design of the index that would provide dairy farmers with valuable information for use in supply negotiations with processors and to assist in following international price trends,” Joyce said.

Meanwhile, as AAP reports, dairy farmers are rallying in Melbourne this morning to highlight their plight. They plan to gather in Federation Square and march to Parliament House.

Dairy farmers are being ‘milked dry’, but let’s remember the real cost of milk

The Australian dairy farming industry is in a state of crisis. Cheap dairy products and fluctuations in both the domestic and global markets have taken a financial toll on farmers. Consumers have rallied to help struggling dairy producers.

But this is only half the problem. The true cost of dairy is also paid by dairy cows and the environment.

Welfare problems

Despite the idyllic image of outdoor farming, several industry practices negatively affect dairy cows. To meet production demands, dairy cows are subject to a continuous cycle of impregnation, induced calving and milking.

Tail-docking and horn removal are routinely performed without pain relief. Lameness is another major animal welfare problem, often the result of environmental pressures, such as tracks, herd size and handling. The average lifespan of a dairy cow is six to seven years, whereas generally cows can live for 20 to 25 years.

One of the most controversial issues is young “bobby” calves. A bobby calf is a newborn calf, less than 30 days old, who has been purposely separated from their mother. Immediately after separation, cow and calf call out and search for each other.

Most bobby calves are slaughtered within the first week of their life. Handling and transport pose added problems for young calves who have not developed herding behaviours, are vulnerable to stress, and are forced to go without their mother’s milk. Each year, 450,000 bobby calves are slaughtered.

Advocacy groups frequently uncover the routine abuse of bobby calves in Australian abattoirs and challenge the dairy industry to do something about it.

Yet aside from the wider ethical questions over the use and exploitation of animals, farmers are not legally doing anything wrong. This is because the treatment of animals operates in a legal context where animals are considered absolute property.

What’s more, farm animals are exempt from the provisions of anti-cruelty legislation. Codes of practice are practically useless, because they promote low welfare standards and are unenforceable.

The environmental impact

As well as systematic welfare problems, livestock farming is, both directly and indirectly, one of the most ecologically harmful human activities. The Australian livestock sector is worth A$17 billion and dairy cattle farming is a A$4.2 billion industry.

In Australia, livestock farming accounts for 10% to 16% of greenhouse gas emissions, with dairy farms contributing 19% of this, or 3% of total emissions. Methane emissions, from digestion and manure, and nitrous oxide from livestock are significant contributors. Globally, the livestock sector is responsible for more greenhouse gases than the world’s transport.

Livestock production accounts for 70% of all agricultural land, including the land used to grow crops to feed these animals. Animal agriculture is a key factor in land degradation, deforestation, water stress, pollution, and loss of biodiversity.

Livestock farming will also be affected by climate change, particularly changes in temperature and water. The quantity and quality of pasture and forage crops will also be affected. Diseases may increase due to fluctuating weather and climate.

Emissions can be reduced

Just as the energy sector is attempting to transition to low-carbon energy sources to tackle climate change, the agricultural sector needs to transition to an ethical and sustainable alternative.

From the current crisis, there are several opportunities for farmers to seize. Large transitions are possible in land use, production, output and profitability.

Places such as Gippsland in Victoria, which currently produces 19% of Australia’s dairy, have the opportunity for agricultural development based on apples and brassicas, such as broccoli, kale, cauliflower, cabbage, turnip and mustard. Some of these crops are already popular in the region. As a result of climate change and increasing temperatures, some areas will be more suitable than others.

While still in the stages of research, perennial grain crops – which store more carbon, maintain better soil and water quality, and manage nutrients better than annuals – have the potential to contribute to sustainable agriculture. New land uses could also include carbon plantings, biofuels and bioenergy crops. Investing into further research for alternatives to livestock farming is needed.

Some have argued that livestock emissions can be technically mitigated by modifying animal feed, better managing pastures, carbon sequestration and manure storage.

Welfare issues remain

But technical mitigation does not address the endemic animal welfare problems in the livestock industry.

Consumer demand is one of the most powerful strategies to combat animal welfare and environmental problems. Research shows that we must reduce food waste and losses in the supply chain and change our diets toward less resource-intensive diets, such as a plant-based diets. Doing so would cut emissions by two-thirds and save lives. It’s possible to eliminate animal suffering and reduce carbon emissions by reducing and replacing livestock production and consumption.

Alternatives to dairy milk include soy and almond milk. Soy milk is nutritionally comparable to dairy milk and has a significantly smaller environmental footprint.

Policy initiatives also need to address these issues. The Food and Agriculture Organization’s Livestock’s Long Shadow report recommends a policy approach that correctly prices natural resources to reflect the full environmental costs and to end damaging subsidies. In the interim, higher taxes on meat and other livestock products will be necessary to improve public health and combat climate change.

Denmark, for instance, is considering proposals raise the tax on meat, after its ethics council concluded that “climate change is an ethical problem”.

Governments everywhere need to have a transitional plan for livestock producers and workers – one that helps to cultivate the ethical and sustainable agricultural endeavours of the future.

The Conversation

Gonzalo N Villanueva, PhD Candidate, School of Historical and Philosophical Studies, University of Melbourne

This article was originally published on The Conversation. Read the original article.

China’s demand for Australian dairy to keep growing

China’s demand for Australian milk and other products like bottled milk will continue to grow as its middle class grows, according to a high ranking Chinese banker.

Bank of China executive vice-president Gao Yingxin told a trade conference in Sydney yesterday that Australia has huge potential to further develop its agricultural sector and increase exports to China.

“With more and more emphasis put on food safety, nutrition and health, China boasts one of the world’s largest and fastest growing milk market,” Yingxin said.

“Between 2005 and 2013, the children’s milk market in China grew at an average of 28 per cent and the recently adopted two-child policy will create even more business opportunities.”

Australian dairy farmers are currently dealing with the stress of decreased farmgate milk prices and for many of them survival is far from assured.

James Pearson, CEO of the ACCI (which co-hosted the event along with the Bank of China) told the ABC that the export opportunity may help some of them.

“For those that are able to do it and have the confidence and capacity to do so, export does represent another opportunity, particularly for firms who are struggling at the moment,” he said.

Federal Trade and Investment Minister Steve Ciobo told the conference that Asia’s middle class will increase sixfold, to over 3 billion by 2030.

“And with that larger consumer base, with the more refined tastes that grow from that consumer base, including of course a strong emphasis that there is out of the Chinese market on clean and green agricultural produce, we know that Australia can meet that demand,” he said.

That demand is likely to extend beyond dairy products to other food products.

Gerry Harvey dismisses proposed milk levy

Retailer Gerry Harvey has dismissed proposals to impose a consumer levy on milk as a way to help struggling dairy farmers and said the price should be left up to market forces.

As the Australian reports, Harvey’s interest in the recent decisions of Fonterra and Murray Goulburn to slash farmgate milk prices stems from the fact that he himself owns a dairy farm and that his retail company Harvey Norman last year purchased a 49.9 per cent stake in Goulburn Valley dairy farm.

Referring to the levy proposal which has been suggested by advocacy group Farmer Power and others, Harvey told the Australian, “In theory it might sound nice but in practice it generally either ends up in tears, or you wish you hadn’t done, there are not many instances in the last 100 years where that sort of activity took place that has longevity or ­success.’’

The Government has no plans to adopt a levy, however as AAP reports, Agriculture Minister Barnaby Joyce announced assistance measures for dairy farmers.  

The plan includes offering concessional loans, based largely on the existing drought assistance scheme; prioritising their access to welfare support, and increasing rural financial counselling services.

While, the Labor Party supported the assistance measures, Opposition agriculture spokesman Joel Fitzgibbon described them as “vague” and said the Government had been slow to act on the crisis.

Warrnambool Cheese & Butter picks up multiple dairy awards

Warrnambool Cheese and Butter’s Warrnambool Heritage and Mil Lel brands have won five gold medals in the Australian Dairy Product Awards 2016, the nation’s only technical awards in this category.

Decided after a rigorous judging process of over 1,200 dairy products by 40 technical experts, Warrnambool Cheese and Butter received the following accolades:

·        Highest Scoring Cheddar Cheese – Warrnambool Heritage Matured
·        Highest Aggregate Score for Cheddar Cheese – Warrnambool Heritage
·        Highest Scoring Consumer Pack Cheddar Cheese – Warrnambool Heritage Vintage
·        Highest Scoring Very Hard Cheese – Mil Lel Superior Parmesan
·        Highest Scoring Italian Style Cheese – Mil Lel Superior Parmesan

The above award-winners will now be invited to enter the esteemed Australian Grand Dairy Awards, run by Dairy Australia, to be announced in 2017.

“What is evident from these accolades is that Australians still love our locally-made cheeses, and it wouldn’t be possible to create such quality products without the support of our local dairy farmers,” said WCBF General Manager of Marketing, Ted Lawson.

“It just goes to show how important it is for us to continue to support these local farmers’ livelihoods and work together to produce award winning, quality dairy products.”

Adding to the quintet of national awards, WCBF also took home an impressive nine accolades in the Victorian awards:

·        Overall Cheese Champion: Mil Lel Superior Parmesan
·        Highest Scoring Cheddar Cheese – Semi Matured: Warrnambool Heritage Semi-Matured
·        Highest Scoring Cheddar Cheese – Matured: Warrnambool Heritage Matured
·        Highest Scoring Cheddar Cheese – Vintage: Warrnambool Heritage Vintage
·        Highest Aggregate Scoring Cheddar: Warrnambool Heritage
·        Highest Scoring Cheddar Cheese: Warrnambool Heritage Matured
·        Highest Scoring Consumer Pack Cheddar Cheese: Warrnambool Heritage Vintage
·        Highest Scoring Very Hard Cheese: Mil Lel Superior Parmesan
·        Most Outstanding Show Exhibit : Mil Lel Superior Parmesan

As well as being the sole technical dairy awards in Australia, the DIAA National Dairy Product Awards are also the nation’s oldest, now in its 121st year.

Murray Goulburn and Fonterra are playing chicken with dairy farmers

Dairy giants Murray Goulburn and Fonterra played a dangerous game of chicken by hanging onto high milk prices despite the global dairy market volatility. Even though both cooperatives are shifting responsibility to each other for the fall in milk prices, which is pushing dairy farmers to the brink, they are both at fault for their race to the bottom. Now both will have to work hard to win back the trust of farmers.

The two companies, both cooperatives (although Fonterra has most of its members in New Zealand) compete head-to-head for farmer suppliers in Australia. Fonterra is the world’s largest dairy exporter accounting for about 40% of global dairy trade and is the fourth largest dairy company behind Nestle, Danone and Lactalis with an annual gross revenue of A$9 billion, and 1200 suppliers in Victoria, Tasmania and South Australia. By contrast Murray Goulburn has annual revenues of A$2.4 billion, 9% of the global trade market and has 2500 suppliers in Victoria and Tasmania.

Since 2005, when Fonterra purchased Bonlac the two companies have fought for suppliers in Australia and grown their respective businesses to meet increasing global demand for dairy product. Their resulting pricing models to farmers were assured while dairy prices continued to rise. Farmers accepted claw back provisions – it was never thought that they would be invoked – and the companies accepted loose contractual obligations to supply. The competitive environment that ensued, from which dairy farmers benefited meant that neither company was able to hold the mantle of market leader for long.

The game of chicken was on as early as August, 2015 when Fonterra began reducing its advance payments to New Zealand dairy farmers). Throughout the following eight months Murray Goulburn and Fonterra steadfastly sat behind their respective wheels committed to hanging tough. Much was at stake.

For both cooperatives a reduction in advance payments to their suppliers in March, or earlier would have saved them considerable reputational risk, and in many cases reduced the exposure of dairy farmers to financial failure. Instead they chose not to swerve, but to hang tough, failing to ignore the significant decline in global prices, for which they both appeared oblivious.

While Murray Goulburn swerved first by lowering the milk solid price, they did so far too late. Fonterra swerved last, but by then the events in the international market had raced past the game – leaving both companies’ suppliers stranded with the over-payment problem from which they now suffer. Recklessly both cooperatives thought they could run the gauntlet with global dairy. That they actually did so for eight months is testimony to the merits of market competition.

Where to now for the two beleaguered companies and suffering dairy farmers? The benchmark for corporate behaviour and accepting responsibility for ‘bad’ outcomes was set by Johnson & Johnson in 1982.

The handling of the Tylenol crisis, where a series of poisoning deaths resulted from drug tampering, set the standard for corporate ethics against which all other subsequent behaviours can be compared. Johnson & Johnson took responsibility, took action and set about the recovery – despite not being responsible for the tampering of their product on shop shelves in Chicago.

It will be through remedial behaviour by each of the dairy giants over the next months that these cooperatives will re-cement their relationships with suppliers, as they both try to win over farmers and gain disproportionate market share at the others’ expense. The outcome both cooperatives have been seeking since Fonterra’s market entry in 2005.

Fonterra have reiterated the view that they warned farmers that the price paid did not reflect the collapse in global dairy prices yet appear to have left the responsibility to them to manage.

Worse, Fonterra’s CEO, Theo Speirings, has now defended the price cut on the grounds that their strategy is to repatriate profit for the benefit of their New Zealand shareholders. This overlooks that the majority that of tradeable shares are held by Australian superannuation funds and that Fonterra’s Australian suppliers had to be being subsidised by their New Zealand counterparts. How else do you explain the 30% increase in farm gate price on this side of the Tasman?

By contrast Murray Goulburn’s behaviour, especially that towards their suppliers, appears far more conciliatory. Murray Goulburn has been transparent about resignations from the board and management; open about reorganisation and appointment of their interim CEO, David Mallinson; and, shared with suppliers the prioritisation of effort.

They have now offered suppliers a Milk Supply Support Package designed to spread the impact of lower milk payments across the next three years. This package sits on the cooperative’s balance sheet – where it should – with no need to take on individual loans at supplier level.

Whether or not either company can emulate the recovery of Johnson & Johnson remains to be seen, but it is reasonable to expect considerable energy, effort and enterprise being expended by them in the months that follow.

Telling evidence will be reflected in market share in 12 months.

The Conversation

James Lockhart, Senior Lecturer, School of Management, Massey University; Danny Donaghy, Professor of Dairy Production Systems, Massey University, and Hamish Gow, Professor of Agribusiness, Massey University

This article was originally published on The Conversation. Read the original article.

Victorian farmers welcome Coles milk fund after prices were slashed by Murray Goulburn

The Coles supermarket chain is launching a consumer-driven milk fund to help Victorian and NSW dairy farmers affected by a sudden drop in milk payments.

The fund is similar to an initiative Coles launched with South Australian farmers in 2012.

The supermarket will establish a new milk brand that will pay 20 cents a litre to an independent fund, aimed at supporting the 2,600 Murray Goulburn dairy farmers affected by last month’s price cut.

But it will take two to three months to get the new brand on sale, and the money raised will be targeted to the long-term future of the sector.

Dairy farmers in Victoria meanwhile face an immediate crisis, after Australia’s largest dairy processor Murray Goulburn announced it would retrospectively cut the price it was paying farmers this season, wiping out two years’ profits for some suppliers.

Fund outcomes for South Australian farmers

Since Coles launched their consumer-driven milk brand with South Australian farmers four years ago — SADA Fresh milks — the retailer has raised about $200,000 a year for farmers.

SA Dairy Industry Fund’s executive officer Ken Lyons said the money was used for on-farm work such as pasture research, and to develop new markets, such as fresh milk sales into China.

“The fund will be investing in projects that will help all dairy farmers,” Mr Lyons said.

“As examples the three new processors that are coming into South Australia are the Beston Group in Murray Bridge, the Midfield group at Penola and the Chinese investment down at Tantanoola — they’re all seeking milk supply.

“That is going to benefit all dairy farmers, by improving the farm gate milk price.

“I think if this takes off in Victoria, it will be a win-win for the industry.”

Council of Small Business sceptical

Peter Strong from the Council of Small Business said the new Victorian consumer-driven fund was only needed because of what the large retailers had done to the industry in the first place.

“This is such hypocrisy and it’s not costing them any money at all,” he said.

“It’s going to cost their customers money, and to pretend to be doing something good, when it’s not costing them any money at all.

“The fact they’re not making any money out of it, is neither here nor there because they didn’t anyway.”

He acknowledged this situation was created by Murray Goulburn not dropping its price early enough, and the global price has collapsed.

“In Australia the fragility of the sector has come from Coles and Woolworths and what they’ve done to the sector,” Mr Strong said.

Meanwhile, Murray Goulburn is facing a class action in the Supreme Court of Victoria, from shareholders who argue the company engaged in misleading and deceptive conduct in statements when it listed on the stock exchange last year.

The company strongly denies any wrongdoing and will be vigorously defending the claim.

Freedom Foods launches Australian UHT milk range in Vietnam

Freedom Foods and partner International Dairy Products (IDP) have launched the Love’in Farm UHT milk range in Vietnam.

The partnership, through Freedom’s Pactum Dairy Group (PDG) business, is the Australian company’s first partnership in Vietnam. Freedom said in a statement that the commencing volume of the high end product is expected to reach 4 million litres in the first year of release.

“The product range will retail at a small premium to domestic UHT fresh products, with IDP aiming to make their high quality Australian dairy milk more accessible to a wider Vietnamese audience,” the statement said.

“IDP expects to expand the range with other high quality value added products to build a strong portfolio of Australian dairy products for Vietnam and other export markets.”

Meanwhile, as the Business Insider reports, Freedom and distributor Pinlive have revealed plans to sell locally-branded long life UHT milk and cereal in China.

Freedom pointed out that UHT milk remains on Beijing’s list of products allowed for import through free trade zones and added that the China Australia Free Trade Agreement is set to improve the competitiveness of Australian companies in China.

Barnaby Joyce to urge higher milk prices

Agriculture Minister Barnaby Joyce has said he will urge retailers and dairy processors to increase what they pay dairy farmers for milk.

Joyce told Channel Nine yesterday he would phone the relevant parties in an effort to resolve the problem.

“[It’s] an anathema, I think it’s incredibly wrong that water in a bottle is priced more than milk and I think we need to have a strong yarn to the retailers about that,” he said.

“[I will] basically ask them if they want to fix it, that would be great if they don’t ask the government to fix it which they always complain about but that’s an option that we can always keep up our sleeve.”

The statement follows the recent decisions by Murray Goulburn and Fonterra to cut their farmgate milk prices. Murray Goulburn cut its price from $5.65 to a low of $4.75 kgMS, while Fonterra cut its price from $5.60 per kgMS to $5.00 per kgMS.

According to the Warnambool Standard, the Government is looking at further ways to assist dairy farmers hit by the price drop.

Member for Wannon Dan Tehan, Corangamite MP Sarah Henderson, Member for Gippsland Darren Chester and United Dairyfarmers of Victoria president Adam Jenkins have met with Joyce to discuss the issue.

“Barnaby Joyce has made it clear that he wants to come down here and hear from farmers on the ground before making a final decision on what needs to be done,” Tehan told The Standard.

“Barnaby will be coming down talking to dairy farmers in Victoria this week.

“We’re looking at some sort of package of assistance for our dairy farmers that will work to get them through this difficult stage and set them up for the future.”

As AAP reports, opposition agriculture spokesman Joel Fitzgibbon claimed the Government has been too slow to act.

“This thing is almost three weeks old and he’s not said a word,” Fitzgibbon said.

“He needs to stand by farmers and show them he has their support.”

Joyce confirmed that the Australian Competition and Consumer Commission (ACCC) will investigate the price drop.

“The ACCC will consider whether the changes have involved misleading conduct or whether there are elements of unconscionable conduct,” chairman Rod Sims said.

Milk price cuts reflect the reality of sweeping changes in global dairy market

A structural change is underway in global dairy markets. A perfect storm has emerged through a coincidence of events, technology, and policy changes across the major dairy producing nations, including Australia, which will result in a long term significant reset of dairy economics across the globe.

Cooperatives Murray Goulburn and Fonterra have both dramatically reduced the prices they offer dairy farmers for milk, sparking a backlash from farmers, who say they will be pushed into the red and out of dairy.

It is only due to the strength of the two cooperatives in absorbing the costs of high milk prices in a changing market that these reductions did not occur earlier. The cooperatives have shown an inadequate understanding of global dairy economics by over-paying farmers and by seeking to claw back over-paid advances.

The low prices have been blamed on a short-term oversupply coinciding with a reduction in demand from China and Russia. Some of this demand is now being met by Chinese investment in both Australia and New Zealand which also contributes to the changes underway. But the debate thus far has focused on problems with demand while ignoring the bigger issue of increasing global over-supply.

The preoccupation with the belief that global demand will solve emerging on-farm production cost difficulties and that a “substantial improvement in prices was still expected by mid-2016” was naïve and failed to recognise how quickly, and irreversibly global dairy supply can change.

Since the mid-2000s a strong increase in demand for milk products across Asia, largely on the back of rising middle-income wealth led to the complete depletion of surplus dairy stocks in the European Union and the US. This change to the supply-demand equilibrium resulted in a temporary sea-change in dairy markets because growth in demand simply outpaced growth in supply by between 50% and 100% in some markets on an annual basis.

To a large extent this imbalance had been driven by regulation of the global supply market in which only a few export nations competed – Australia and New Zealand included. It resulted in higher than historical average dairy prices in global markets, but considerably more short-term volatility due to global GDP shocks and short-term supply-demand imbalances.

Regrettably a critical assumption that appears to have emerged among producers during this period, as evidenced by continued investment and expansion, was that the real price for global dairy commodities was increasing, a trend they expected to continue in the long term.

The current dairy price scenario, which would historically have been short-lived, is in fact masking underlying structural changes to supply-side dynamics that are now underway. Only approximately 7% of globally produced milk is traded (65 billion milk-equivalent litres). Therefore, a small change in supply globally has a profound effect on the global dairy market equilibrium.

The EU is the world’s largest milk producer, with approximately 160 billion litres produced annually. The removal of milk production quotas in March 2015 presented an opportunity for dairy expansion and, even more importantly, one that is no longer confined to the traditional dairy exporters of Ireland, France, Belgium, and the Netherlands.

Under quota, EU exports doubled between 2000 and 2013 to 9.5 billion litres and are anticipated to increase again this coming season. Quota removal has freed dairy farmers in central and Eastern Europe to increase in scale considerably, availing themselves of technologies denied during the Cold War years. Coupled with the removal of regulations concerning the transportation of liquid milk across borders, producers and processors now find themselves with opportunities for growth not experienced since the second world war.

Political policies in the world’s third largest dairy producer, the USA, are also likely to influence global dairy supply in the future. Current dairy production is being stimulated by low feed prices, which were driven by record yield seasons in 2013 and 2014, similar levels in 2015 and new projected highs this year.

Eighty percent of US dairy farm costs are feed. The reduction in feed costs from US$29.26 per 100kg milk in August 2012 to US$18.04 per 100 kg milk in June 2015 has greatly increased the value of marginal production.

The advent of large-scale fracking, which has resulted in a significant reduction in the price of oil, will likely maintain lower corn prices, at least in the short-term. This comes as the reduced value of biofuels re-focus the use of corn back to a feedstuffs for farmed livestock. The net result is that 75% of every new tonne of production across the USA is expected to be sold on the global surplus market.

Farmers have fought for free trade and open access for decades on both sides of the Tasman. Now that it is emerging, profitable returns will be caught first by the lowest cost global producer.

We are fools to think that that will be either Australia or New Zealand. Therefore, possibly with the exception of the US market, a downward reset is in store for global dairy prices.

 

James Lockhart is Senior Lecturer, School of Management, Massey University.

Danny Donaghy is Professor of Dairy Production Systems, Massey University

Hamish Gow is Professor of Agribusiness, Massey University

This article first appeared on The Conversation. Read the original here.

Fonterra axes 30 jobs from Hamilton Canpac plant

There is sadness among workers as Fonterra cuts 30 jobs from its Hamilton packaging facility Canpac.

The proposal to outsource the print and press operations were presented in mid-April, with low milk prices and dairy downturn to blame.

Union E tu has 21 of its members affected by the cut and national Fonterra advocate Fiona McQueen said there was a feeling of great sadness.

“These workers have worked together for a long time, and they’ve worked really hard,” she said.

McQueen said there will be redeployment options but there would likely not be any skilled jobs for metal decorators anywhere in New Zealand.

The union will know more about the worker’s options after future talks held with Canpac next week.

Plant E tu delegate Rachel Paul said the general mood was “like the grief cycle” where some people were “really angry, some are in denial and some are resigned and looking ahead”.

Fonterra New Zealand director of manufacturing Mark Leslie said the decision to cut jobs came from reducing demand on press and print operations and cost efficiencies of outsourcing.

With low milk prices, Leslie said it was “important we consider all alternatives that will drive cash back to our farmers.”

“We have worked closely with this group throughout the consultation period and have listened to all views to ensure their preferences could be met -be it a new role at Fonterra or the option to take redundancy should that be their preference,” he said.

Fonterra follows Murray Goulburn lead and slashes milk prices

Australian dairy farmers received another blow yesterday as dairy processor Fonterra cut the price it pays suppliers by more than 10 per cent.

The company said in a statement that it had revised its farmgate milk price from $5.60 per kgMS to $5.00 per kgMS for the current season.

Dairy farmers, who are still coming to terms with last week’s decision by the country’s largest dairy processor Murray Goulburn to cut its farmgate milk price from $5.65 to a low of $4.75 kgMS, will not be happy with Fonterra’s decision.

“The price change better reflects the reality of the supply and demand imbalance that is affecting global dairy commodity prices, compounded by the recent strength of the Australian dollar,” the statement said.

Fonterra Australia managing director Judith Swales told the Australian had been warning farmers that the price was high since last August.

“We’ve been trying to send a signal since August to our farmers — and since then global commodity prices have dropped further — so hopefully this is not too much of a surprise,” Swales said.

“We have always advised caution to our farmers; we absolutely flagged a (price rise) wouldn’t happen at the end of this year, but to expect a step down.”

Fonterra Australia is also offering its suppliers an interest-bearing support loan of up to 60c per kgMS that is linked to a supply commitment and is repayable from FY18.

United Dairy Farmers of Victoria president Adam Jenkins was not happy with the price cut.

“We understand Fonterra was trying to be transparent … but to then slash the price as far down as Murray Goulburn went and in the same week is unacceptable; it smells of opportunism,” he told the Australian.

Two Murray Goulburn directors quit in two days

Dairy co-operative Murray Goulburn said on Wednesday that Special Director, Kiera Grant has resigned from its board.

Grant was only appointed to the board in March this year and her resignation follows the departure of another director Max Jelbart, who resigned due to poor health on Tuesday.

“It is regrettable that we have lost such a capable and experienced director before she really had an opportunity to contribute to Murray Goulburn’s future. However, we completely understand Ms Grant’s decision in the circumstances,” said Murray Goulburn chairman Phil Tracy.

Last week MG’s managing director Gary Helou stepped down following the co-operative’s decision to cut both its profit forecast and the price it pays framers for milk.

The co-operative said in a statement at that time that it now estimates a net profit after tax of between $39 million and $42 million. Originally, in its prospectus, Murray Goulburn had forecast a profit of $89 million. Then in February it lowered that figure to $63 million.

Tracy said yesterday that the Board now needs to win back the support of shareholders and dairy suppliers.

The decision to cut prices paid to suppliers by 10 – 15 per cent has caused much emotion among dairy farmers.

Murray Goulburn meets dairy farmers to explain milk price cuts

Dairy processor Murray Goulburn management yesterday met with dairy farmers for the first time since its decision to cut the price it pays suppliers.

The Weekly Times reports that 400 people attended the Camperdown Football club in Victoria’s south-west, for the first of several meetings between the dairy co-operative and its suppliers.

As the ABC reports, about 2,500 dairy farmers in total will be affected by Murray Goulburn’s to cut prices by between 10 and 15 per cent.

Murray Goulburn chairman Philip Tracy said he apologised for the unexpected move and noted that it was an emotional meeting.

“Obviously the suppliers are very disappointed with our announcement but lots of constructive comments were made for the board to take away,” Tracy told the ABC.

“Effectively we have just apologised to the suppliers for the absolute disappointment we’ve created.

“To put them in a position where they’ve had expectation taken away from them.”

Last week’s decision was accompanied by the resignation of managing director Gary Helou as well as a large cut to the co-operative’s profit forecast.

Murray Goulburn now estimates a net profit after tax of between $39 million and $42 million. Originally, in its prospectus, Murray Goulburn had forecast a profit of $89 million. Then in February it lowered that figure to $63 million.

The ABC reports that dairy farmers have started a campaign calling on the public to support them through this hard time. Called “Show Some Dairy Love”, the campaign is taking place on social media.