For many shoppers, it was why farmers were being forced off their farms.
It prompted social media campaigns calling on the major supermarkets to ditch the cheap milk.
But what few understand even to this day is that if the supermarkets ended milk discounting, it would do little to end the industry crisis.
Here’s why.
Understanding how farmers are paid for their milk
Milk pricing is complex. While shoppers buy milk in litres, most farmers are paid in kilograms of milk solids. They do so because this measurement takes into account the proportion of protein and fat in their milk.
Where a farmer lives determines how much they will get paid, with processors offering different prices for farmers in the north and south of the country.
The further north you travel in Australia, the more likely that farmers are producing milk that will end up being sold fresh in bottles, to end up on someone’s breakfast cereal, or in their cup of tea.
Those northern farmers were hardest hit when supermarkets dropped their prices to a dollar a litre in 2011, because the milk they produce is consumed almost exclusively as a liquid product within Australia.
But the majority of Australia’s dairy farmers are not in that category. Instead, they are concentrated across the powerhouse dairy regions of Victoria and Tasmania, as well as southern NSW and south-east SA, where most of their milk is processed.
Instead of being sold in a liquid form, it is turned into cheese and milk powders for export, and as a result, the global dairy market is the biggest driver of the price those farmers are paid.
A processor starts the financial year setting its milk price. It will then usually announce a «step-up», where it lifts prices and retrospectively back-pay farmers the difference.
When Murray Goulburn, and later Fonterra, announced sudden and retrospective price cuts it was the southern farmers who were hardest hit.
They had been told that booming export markets for milk powder products, particularly in China, would open up rivers of gold for the Australian dairy industry.
As we now know, that did not go as planned.
Where did it all go so wrong?
Few could have predicted that a conflict in Ukraine could have had such enormous consequences for the global dairy market.
As Russia and Ukraine fought over Crimea, the saga escalated when Malaysian Airlines flight MH17 was shot out of the sky.
What ultimately resulted was a trade war, where Russia imposed import bans that prevented Western dairy products entering the country.
That directly hit Australian farmers, because European milk that would otherwise have gone to Russia, was instead sent into markets where Australia is a significant player.
It also meant, for example, that cheese that was produced in Finland but branded for Russian shoppers had to be sold domestically.
What Finnish shoppers would later call ‘Putin cheese’, was sold alongside other locally-produced cheeses but for a fraction of the price.
The Russian import ban meant that global stockpiles of cheese and milk powder rose. At the same time, in a case of unfortunate timing, the European Union’s long planned phasing out of dairy production caps became a reality.
Quotas, or production caps, were introduced in the 1980s when production outstripped demand.
When the quotas finally came off in May 2015, milk production skyrocketed, prices fell and farmers vented their anger at EU officials by spraying milk on offices and dumping manure in the street in Brussels.
Making matters worse was the revelation that China had a growing stockpile of milk powder.
The combined effect of Russian sanctions, Europe removing milk quotas and a Chinese’s stockpile created the perfect storm that Australian dairy farmers are still enduring.
But that’s happening overseas. Why does that affect Australian farmers?
Conditions became so bad on global markets that agribusiness analysts in New Zealand urged processors to stop building milk dehydrators.
They argued the country was too exposed to global powder prices and needed to diversify away from dried powders and into more fresh products.
In Europe, farmers were earning so little that they had to find other incomes, like producing bio-gas from cow manure, to keep their farms afloat.
Murray Goulburn argued it could beat the global factors because it had diversified into higher valued products like nutritional products.
But it was wrong. Two months before the end of the financial year, the company was forced to cut its profit forecasts, and decided to retrospectively slash farmer milk prices
Murray Goulburn ultimately blamed an unfavourable change in the exchange rate, lower than expected adult milk powder sales in China and a devaluation of its milk supplies for retrospectively cutting farmer prices.
All the factors it blamed had nothing to do with fresh milk retail pricing, which would ultimately go on to bear the brunt of public ire over the crisis.
Given how poor global markets were travelling, some outside the industry were left to question why Australian farmers weren’t taking note and stocking away cash in case the crisis reached their shores.
When this reporter asked a senior figure in Australia’s farm lobby, he responded «if someone tells you you are ugly and someone else tells you you’re attractive, you’re going to want to believe the person who thinks you’re hot».
What shocked the industry most was that there had been few signs either Murray Goulburn or Fonterra in Australia were preparing to cut prices. So when the shock came, few farmers were prepared.
Why then was there all that talk about dollar a litre milk?
Standing in front of the milk shelves in the supermarket is the closest most shoppers will come to the dairy industry, so it is understandable that consumers would be quick to assume cheap milk was the cause.
Part of the trouble was that the dairy industry lacked a united response to the crisis.
The lobby group Farmer Power seized on the crisis to amplify its long-running campaign to end discounted fresh milk.
Farmers took to the street to protest against retrospective price cuts, while the national lobby group Australian Dairy Farmers suddenly changed its leadership before the crisis was even a month old.
By November, ADF would have its fourth president in little over a year.
The vacuum of national leadership in the early days of the crisis, during which social media was flooded with posts about shoppers and the price of the milk they were buying, meant consumers had little else to latch on to.
This was amplified by federal politicians who also fronted the nation’s press taking aim at discounted milk.
So does it matter what milk I purchase?
Yes, to an extent.
In the years of dollar a litre milk, the value of the Australian milk market has grown.
The biggest growth has been in the so-called branded products – the more expensive milk.
The reality is axing dollar a litre milk would have done little to prevent Australian farmers from battling a sudden price crisis.
That said, the industry hates discounted milk because of the message it sends. They argue it devalues their product. They say as costs have increased, the price of this milk hasn’t.
Dairy Australia says sales of branded milk puts more money into the supply chain. And as more money goes into the supply chain it allows processors to pay farmers more for their milk in the long-term.
There is also an argument that suggests buying branded milk will send a message to the major supermarkets about their decision to offer cheap milk.
However, even after all of last year’s campaigns against cheap milk, the supermarkets are showing few signs they are willing to ditch the product any time soon.
What about a levy on milk sales? Would that help fix the crisis?
National and state dairy lobbies have rejected political and farmer calls for a levy on fresh milk sales.
They argue this is a milk powder crisis and a levy on fresh milk is unlikely to fix the problem.
They also argue that adding more bureaucracy and regulation will send the sector backwards.
The Federal Government has also vowed to introduce a so-called effects test, which could potentially make it easier to prove anti-competitive behaviour by the major retailers.
The Deputy Prime Minister Barnaby Joyce has said he hoped and effects test would rid the dairy industry of dollar a litre milk.
But among all this talk of fresh milk, dairy farmers continue to hurt.
They have slammed dairy loans the government has offered as being just more debt for them to accumulate.
What they want is for rules to prevent milk processors from retrospectively cutting milk prices.
Because after everything, as annoyed as farmers might be with supermarkets offering cheap milk, it’s the processors – particularly Murray Goulburn and Fonterra – who cut farmer prices.
And the more that community attention is on cheap milk, the less the processors have to explain their role in the milk crisis and the decisions that they made that led to it.
Topics: dairy-production, agricultural-prices, agricultural-policy, melbourne-3000
Source: ABC
Link: http://www.abc.net.au/news/2017-01-27/understanding-the-dairy-crisis/8184510
