Dairy farmers in the UK who are facing similar price cut impacts as Australian farmers have vowed to continue protesting about the returns they receive.
UK dairy manufacturers and farming groups, including the National Farmers Union, signed a draft deal yesterday to adopt a voluntary code of practise to oversee relationships in the dairy industry.
The agreement comes after talks organised by the UK government as well as protests and blockades from farmers at retail and processor sites.
Farmers have taken aim at processors including Asda, Morrisons and Robert Wiseman Dairies after they announced plans to cut prices on 1 August.
Farmers for Action chairman David Handley said the organisation will be "relentless" in its pressure to reverse the planned cuts and to push retailers to pay more for their milk.
Government involvement
Earlier this month UK Prime Minister David Cameron announced that the government will spend £5 million (AU$7.6 million) on a program to improve competitiveness for dairy farmers.
The NFU and dairy industry body Dairy UK agreed to "heads of terms" for a code of practice yesterday, which includes initial agreements to set minimum requirements for contracts between farmers and processors.
Handley is doubtful the code of practice will work and said the Government should consider legislating to ensure fair prices and treatment of farmrs if the code fails.
"We've got to start somewhere [but] I personally have my doubts of whether the voluntary code will work," he said.
"We've got to do is convince the minister that we are prepared to give it a try on the understanding that, if after between three and six months, it has clearly been shown not to work, they have to go for legislation.
There is no way that this industry can be allowed to get back to this situation ever again.
“Every 18 months to two years, somebody is trying to cut the milk price.
“We've got to start somewhere but I have grave reservations, knowing the people that are in this industry that are in the supply chain of dairy."
Aussie farmers suffeing same issues
The problems being faced by dairy farmers in the UK are all too familiar for Australia’s own dairy farmers.
After Coles cut its retail milk price to $1 a litre in January 2010, 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.
Supermarkets have too much power
"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, because it's not profitable for my children,” Toohey said.
"If I was old and had children ready to take over the farm, I will tell them blue in the face not to come into agriculture.
“And that's pretty sad after 107 years on the one farm."
Toohey said the current practise on Australian soil were based on the Tesco model in the UK, which has caused indescribable pressure on the industry over there and is having the same impact here.
“Given the sheer size of the supermarket duopoly, over 75% of the market is between the two powers and they are wielding that power over the Australian marketplace, and the majority of Australian suppliers, particularly to the fresh food industry.
“In the United Kingdom, they have already experience this and I say you’ve all read that this is a Tesco model – the people that have been brought in by Coles have come from Tesco.
“I was over there, I had to go over there to do a study 4 years ago, and I came back with an alarm bell saying, ‘it’s not what’s going to happen in Australia, it’s when it’s going to happen in Australia.’
“But what has happened over there [has] been going on for 12 years and the government has stepped in, and we’ve seen a turnaround.
“But it’s plugging a hole in a boat, but the hole is that big, and it’s nearly too hard to plug.
“And I believe that’s where we’re going at the moment.
“At least the Titanic was going forward but it sunk, I don’t know about the dairy industry.”
An investigation by the Australian Competition and Consumer Commission (ACCC) cleared Colesof any wrongdoing in the case, and a Senate enquiry also found the supermarket was not putting dairy farmers at direct disadvantage with the pricing, but Australian Dairy Farmers Association president Chris Griffin told Food Magazine after the report was released that the Senate failed to address the real issues when it produced its findings, and farmers have continued to leave the industry in droves.
Another Senate Inquiry into the power of the major supermarkets struggled to convince people to speak out about the behaviours of the major supermarkets, too afraid to speak up for fear of the consequences.
Do you think we need more government involvement to help our struggling dairy industry?
Here at Food Magazine, we think there needs to be a Royal Commission into the supermarkets’ actions. What are your thoughts?