About five years ago, the Australian dairy industry was thrown into turmoil when the «milk wars» erupted.
The milk wars were a strategic game of commercial tit-for-tat, when supermarket giants Coles and Woolworths dropped their sale price for milk to about one dollar per litre.
The impact was significant and dairy farmers beared the brunt of the price-slashing.
Because dairy processors, such as Murray Goulburn and Bega Cheese, had recieved less for their milk from the supermarkets, the price cut was passed on to the farmers who they bought milk from.
During the war, farmers in the NSW Hunter Valley received on average between 39 and 45 cents per litre for their milk. Some received even less.
The wars impacted dairy farmers around the nation, forcing many to close their farms because they couldn’t drive enough income to pay the bills.
Years on, and the effects are still being felt, and now, the global dairy industry in the midst of a fresh period of tumult.
Dairy farming in the NSW Hunter Valley
David Williams is a third generation dairy farmer from the NSW Hunter Valley town of Vacy.
Nestled among sweeping green hills, Williams’ grandfather bought the 220 hectare property 65 years ago.
The farm has changed considerably over that time – when they started out, the Williams family milked about 60 cows; now they have a herd of 300 that are milked morning and evening.
For the Hunter Valley, the operation is considered an average size dairy farm.
Milk wars not over just yet
At the height of the milk wars, David Williams felt its stinging effects.
«We were affected reasonably badly,» he said.
«Probably not as bad as some other people because we did have a reasonably large contract with the milk processor, but some of our milk we did sell for 14 cents per litre, this at the time was probably a third of what the cost of production was.»
During the wars, Williams recieved an average of 45 cents per litre for his milk.
It has slowly climbed in value, to now about 60 cents per litre.
It might not sound like a significant difference, but for farmers, the effects are considerable.
«A few cents makes a huge difference,» Mr Williams said.
«On 2 million litres [of milk], one cent makes $20,000.»
Mr Williams believed the price wars were not completely over, with supermarkets still retailing milk for about $1 per litre.
He said the dairy processors had been responsible for improving the fortunes of farmers and the local industry has been considered fairly stable.
Mr Williams supplies milk to the processor Murray Goulburn. He said the factory he sends his milk took about 200m litres per year from farms between the NSW mid-north and south coasts.
«It is only because the processors have been able to reduce their costs and consolidate a bit that they have been able to carry through on the prices,» he said.
«When the milk wars were on, a lot of people exited all at once. There is very few exiting at the moment, [and we have] even had a couple of new ones start up — a couple of smaller farms.
«We are still probably sending the same amount of milk to Sydney as we were before.»
Turbulence in the global dairy industry
While many farmers still felt the pinch of the milk wars, a crash in global dairy prices has posed new challenges for the entire industry.
It has been widely considered the drop in global dairy prices has come about because of a few key factors.
Broadly, the crash has been driven by fluctuating global export prices.
Internationally, there has been a glut of milk products — particularly milk powder. Therefore, with a glut, the value of the product decreases for export because there is already so much dairy product on the global marketplace.
The placing of sanctions on Russia over Ukraine has added to the issue and Russia has banned the import of dairy products from overseas.
These factors, coupled with the downturn in the Chinese economy, have seen the Global Dairy Trade market go into freefall.
Local impacts of worldwide dairy demand
David Williams said the global issue had flow-effects for local producers.
But he believed Australia has been largely insulated from the turmoil because of the falling value of the dollar.
«Locally [with] the domestic milk that you drink, the price has held fairly well,» he said.
«In Victoria where they export more milk there, there has been a price drop. Also in New Zealand, which is one of our major competitors, their price has absolutely collapsed — they have probably lost 25 per cent of their price.
«At the moment, we are still fairly lucky because the price is still fairly stable.
«Luckily the Australian dollar has dropped a lot, and that has helped with the prices as well.
«We are just watching our costs at the moment.»
In late August, milk processor Murray Goulburn (who David Williams supplies milk to) announced a $21.2 milion annual profit, after tax.
The company’s management said they were optimistic they would not have to drop milk prices to suppliers.
Mr Williams was encouraged by that statement, but has been wary of being overly frivolous with his own spending, because of the broader instability.
«The milk has to go somewhere, so if overseas companies can not sell it, they cut back on their price and it could have a flow-on effect back to Australia,» he said.
«It can turn around rather quickly. If someone steps in and starts buying up powdered milk, the price can jump. It is very fickle.
«As long as prices don’t drop, people are fairly confident with the way things are going … but a price drop could really turn things around, I think that would really put a dent in people’s confidences.»
Source: ABC
