Available price, growth incentive, quality incentive, prepaid step-up, dividend and effective, initial and achievable price.
No wonder dairy farmers’ minds boggle when it comes to farmgate milk prices.
For years, the dairy industry has been told that trying to talk about price between individual farms is like comparing apples with oranges.
But as questions arise about the transparency of farmgate prices, analysts are concerned differences in prices may create two tiers of farmers.
Gippsland farm consultant John Mulvany, a long-term advocate of a fairer pricing system, said there were two issues with farmgate prices: the difference between suppliers and how close this difference took a business to the cost of production.
«If profit on a good dairy farm is, say $1 a kilogram of milk solids true profit, the variation of up to $1kg/MS across a supply base means a very large portion of a supply base is unprofitable,» Mr Mulvany said.
«This will depend upon costs, (but) costs correlate poorly with the time of year milk is produced on many farms.»
He said many of his clients whose processor claimed a $5.60kg/MS opening price were closer to $5.25kg/MS.
But this problem is not unique to Gippsland.
In western Victoria, The Weekly Times understands a price difference of about 17 per cent exists between one 500-cow farm and another 250 head operation.
The difference is larger if growth incentives are included.
United Dairyfarmers’ of Victoria president Kerry Callow said farmers needed clarity with pricing and the concept of a weighted average did not help transparency.
«The weighted average takes an indicative figure rather than a herd figure,» she said.
The Weekly Times has been told of income estimates from processors from less than $5kg/MS for a supplier milking fewer than 200 cows and up to $6kg/MS for larger flatter-supply herds.
While many farmers are yet to receive estimates for the coming season, some told The Weekly Times confusion around the quoted price and their actual price was detrimental to the industry.
Rabobank Gippsland regional manager Scott Price said he had seen a range of 70-80c/kg of milk solids across his 400 dairy clients.
In the lead-up to the new season he hadn’t seen many «average» 250-300 cow farmers at the announced opening of $5.60kg/MS, but preliminary estimates for some larger operations showed a close that was well above $6kg/MS.
One high-testing, 400-head, split-calving herd producing between 8500 and 9000 litres/cow/lactation is estimated to close at $6.28kg/MS next season, following four loyalty payments, according to Mr Price.
By comparison, a 1000-cow farm, mainly autumn calving with lower tests, expects to finish about $6.15kg/MS.
«At this stage we see it as a repeat of 2008 … back in that year many made $6.40kg/MS,» Mr Price said.
«But many need $5.50 (kg/MS) just to break even and $6 (kg/MS) to make some money.
«They need that this year to make up the 50-60c/kg milk solids they lost last year.»
WHAT THE MAJOR PROCESSORS SAY
- MURRAY GOULBURN
Fat and protein and seasonal incentives were introduced in the 1980s. Each dairy farmer in Victoria has received a different price per kg milk solids based mainly on the fat and protein ratios, milk supply pattern, quality and, since the 1990s, productivity.
In the past 30 years the off-peak incentives have grown but MG has reversed this 30 year trend for 2013-14 by reducing the incentives.
- BURRA FOODS
The range for Burra supplier is comparatively narrow – there is less than a 5 per cent difference.
Burra’s actual pricing is $5.40kg/MS for the average Gippsland farm for next season.
Let’s hope that doesn’t get lost in the noise being created by the other processors.
- FONTERRA
The range Fonterra pays suppliers varies according to their supply region, regional production factors and each farmer’s milk profile, selected pricing options, milk quality and farm management system.
This is partially due to the fact that each farmer will have different quality and growth incentives in place. The value of these specific incentives on offer is outlined in our Supplier Handbook.
Anything further than this is misrepresentative of the farmgate price and profitability.
- WARRNAMBOOL CHEESE & BUTTER
Most suppliers will be +/- 5 per cent from our average price for 2012-13 of $5(kg/MS)
The price quoted is the weighted average milk price we will pay across our suppliers inclusive of all components of our price structure.
- BEGA CHEESE
Did not answer questions before deadline.
- UNITED DAIRY POWER
Did not return calls by deadline.
Source: Â Weekly Times Now
