QDO Calls For A Fairer Deal for Dairy Farmers

Posted by Josette Dunn on 19th July 2010

The Queensland Dairyfarmers’ Organisation is extremely concerned for the future viability of dairy farmers following the release of details of current negotiations between collective groups of dairy farmers and the dairy processing company National Foods.

Milk splash

Last week the Queensland-based collective bargaining group of dairy farmers, Progressive Dairies, publicly released details of its price and supply negotiations with National Foods.

The figures released present that National Foods is seeking to reduce payments to farmers by more than 20% and to introduce a two-tier milk price system.

“Such a price reduction presents a bleak future for these dairy farmers if the current negotiation process does not achieve a fairer outcome,” QDO President, Brian Tessmann, said.

“A price plummet like this would see most Queensland dairy farmers become unprofitable. If that happens, the economic impacts will have a domino effect on other rural businesses and communities in dairying regions.”

Mr Tessmann said a number of dairy farmers in Queensland had already exited the industry due to concerns about future prices and current events could trigger a further exodus.

“That creates a very real and frightening prospect of the industry plunging into a situation of not being able to supply the milk needs of the Queensland in the future.”

In representing the interests of dairy farmers, the QDO has appealed to National Foods to offer a more sustainable agreement on price and supply conditions for their dairy farmer suppliers.

National Foods have presented that they have a greater volume of milk than they can sell as fresh milk and, as a result, they plan to introduce a two tiered pricing system, with the first Tier reflecting fresh bottled milk sales and the second Tier milk used for manufacturing with a lower price.

The price offered from National Foods disclosed last week was 46.19 cents per litre for Tier One for 72 percent of the farmers’ production, based on last year’s contracted production volume. For Tier Two the price on offer is 30 cents per litre on the remaining milk production.

“These prices are neither fair nor sustainable,” Mr Tessmann said.

In the Queensland Dairy Accounting Scheme report for the 2008/09 year, which includes collective financial performance data from 67 larger-than-average Queensland dairy farms, the average price received was during 2008/09 was 56.3 cents per litre. They made a profit before tax of approximately $110,000.

The current reduced price offer from National Foods would see the average price received per litre of milk fall by more then 21 percent to 44.4 cents per litre The profit before tax would fall by more than $150,000, creating a loss of approximately $41,000. In Far North Queensland, this scenario would be worse because of higher production costs compared Southern Queensland.

Given these figures, the QDO agrees with the concerned group of farmers that these prices are not viable for Queensland dairy farmers or the industry as whole.

The QDO clearly understands the need to balance supply and demand and for any processor to offer a lower ‘manufacturing’ price for milk that it cannot sell as fresh bottled milk.

The QDO however questions the proposal to reduce the Tier One price by some 18pc for farmers’ milk sold as fresh bottled milk, when the retail price of fresh bottled milk has not dropped. In fact, for a number of branded products, the retail price has increased over recent years.

The QDO also questions why the proposed price for Tier Two is 30 cents per litre when in Victoria milk prices for manufacturing milk have opened some 30pc higher than last year and are forecast to climb over 40 cents per litre during the year.

“The QDO is also extremely concerned about the ongoing impacts on the whole industry chain of ‘private label’ procurement, as well as marketing and pricing strategies of the major supermarket chains,” Mr Tessmann said. “This has significantly lowered the returns to the domestic dairy industry – for both farmers and for processors – over the last decade.

“The QDO presented these concerns to the recent Senate Inquiry into competition and pricing in the Australian dairy industry.

The QDO has also presented that the industry needs to be able to increase its milk production capacity to meet the needs of future population growth.

“To meet the demand for milk from a growing population, farmers need a sustainable return for their businesses, just as processors and retailers do.”

Medium level population forecasts present the need for Queensland milk production to grow to produce an additional 160 million litres per annum in ten years time.