Can the Australian dairy industry be saved?
Deputy Prime Minster Barnaby Joyce has this week announced a $550 million support package for Australian dairy farmers in hopes of saving their farms after a sudden crash in milk returns to farmers in the past month.
The package includes $555 million in concessional loans for farmers and $2 million to establish a commodity milk price index.
Despite the announcement, dairy farmer street rallies went ahead in Melbourne, Brisbane and Adelaide this week.
The Farmer Power group says that the concessional loans are not what farmers require as they already cannot repay existing loans.
Murray Goulburn, owner of Devondale, had previously said it would no longer pay farmers the previously anticipated AUD $5.60 per kilogram of milk solids for the season and revised its price to AUD $4.75.
Fonterra soon followed with an announcement that it would be lowering its price.
Although Murray Goulburn attributed its sudden price drop to unfavourable international markets amongst other reasons, some analysts attributed the price to poor management decision-making.
Fonterra also attributed its drop to low milk prices due to the oversupply coming out of Europe after the European Union ended its quota system in 2015.
The drop in prices lead to farmer anger with many now being forced to sell their milk for less than cost of production.
In February 2016, Murray Goulburn announced a net profit of only AUD $10 million for the six months ended 31 December 2015.
This was a 34.1 per cent drop on the previous 2014 corresponding period.
“The first half has seen the continuation of the decline in Chinese imports of commodity dairy ingredients and the ongoing Russian embargo on dairy imports,” said CEO Helou at the time.
“This has been compounded by increased European milk supply, resulting in a period of significant oversupply in global dairy commodity markets, driving commodity prices towards record lows,” Helou said.
Yet, at the same time, Fonterra managed its own net profit of NZ$409 million, a 123 per cent increase on the corresponding 2015 period.
“The balance between available dairy exports and imports has been unfavourable for 18 months following European production increasing more than expected and lower imports into China and Russia. This imbalance is likely to continue in the short term, with prices expected to lift later this calendar year,” said Fonterra Chief Executive Officer Theo Spierings at the time.
As concerns mount, major Australian supermarket Coles announced it would be creating a new private label milk with the profits going to farmers. However, this announcement provoked anger and scepticism with the price being offered to farmers 19 cent per litre less than what Coles was previously paying 12 months ago.
Victorian government critcised
Although the Victorian government also made an announcement this week of a smaller assistance package for Victorian dairy farmers, it attracted criticism for its pittance size and for its reliance on the dairy industry to contribute to the funding.
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