Mass dairy exodus feared as dairy firms slash prices
A number of leading players in the Australian dairy industry have cut prices paid to farmers, sparking fears that it could force a number of suppliers out of the industry this year.
Major milk processors in Australia announce their opening milk prices at around this time of year and can increase the price through step-up payments during the year. Last season, many processors lowered prices – something of a rarity – as commodity prices plunged.
Murray-Goulburn announced a cut to 26c per litre, while Tatura Milk and Warrnambool Cheese and Butter (WCB) reduced their prices to 28c/litre. The expectation was for heavy cuts as falling demand has hindered global dairy prices.
Reports suggest up to a third of Murray’s suppliers could leave, while WCB saw a mass exodus when they announced a cut to prices at the end of March – which forced them to reinstate the price announced in January. WCB’s reduction is from 35c to 28c – a drop of 20 per cent. Had the planned cut in March gone ahead, average prices for the entire 2008/09 financial year would have been 36c/litre.
Waaia dairy farmer and Murray Goulburn supplier, Max Baker, told the ABC that such low prices – around 35 per cent below that at the start of the last financial year – were a devastating blow to many farmers who have also been battling a severe drought for years.
“We had a good start to this season and that’ll make a difference if we can grow our own feed … but if we get another dry season and bought-in feed, I dare say, and I’m only guessing this figure, but I reckon there’ll be a third of dairy farmers in the Murray and Goulburn valleys go out of dairy farming,” he said.
“It’s just unsustainable levels.”
Warrnambool Cheese and Butter has had a turbulent year with three profit downgrades, an aborted capital raising, struggles to raise the funds requried for their National Foods joint venture and the resignations of the CEO and Chairman after losing the confidence of some suppliers. They said the global conditions left them no choice but to slash prices.
“The Company reached the decision after considering the current trading conditions, the trends in international commodity prices, movements in the Australian dollar and general dairy industry conditions,” they advised in a statement. “Although the price represents a significant decrease from last year’s price the Company’s view is that there is a positive outlook for the dairy industry and the Opening price takes into account the interests of all stakeholders in the Company.”
The stark change in conditions for dairy producers and manufacturers has been unprecedented, it was only a year ago that WCB said in an analyst presentation that the state of the industry was “buoyant”.
Fonterra and Bega are yet to announce their prices – although Fonterra did announce last month a cut to between 28 and 34 cents for their Wagga suppliers.