ASX-listed Bega Cheese yesterday became the second dairy processor to announce its opening milk price for the sobering financial 2017 season, after the sudden crash in farmgate dairy prices by Australia’s two biggest dairy companies, Murray Goulburn and Fonterra, seven weeks ago.
Bega chairman Barry Irvin told The Australian he understood his milk suppliers would be disappointed at the new and low $5-a-kilogram price, since it is below the actual cost of production for most farmers.
On average it costs farmers at least $5.60 a kilogram, or 42c a litre, to produce milk, with the new Bega price equating to a loss of 5c for every litre its farmers milk from their cows. But Mr Irvin said the new price was the best the company could do in the “perfect storm” of low global prices and a dairy glut, particularly after Bega had resisted slashing its 2016 milk price from $5.60 a kilogram for May and June in line with Murray Goulburn’s collapse. Murray Goulburn slashed its milk price to just $4.75 a kilogram (34 c/l) in late April, backdated by 10 months, when chief executive Gary Helou resigned, while New Zealand’s Fonterra has been paying its 1100 Australian farmers a just $1.91 a kilogram for the past two months.
If Murray Goulburn’s opening price for 2017 is below its current $4.75 a kilogram when chairman Phil Tracy makes his announcement tomorrow, it will cause massive hardship for the dominant co-operative’s 2600 farmer-suppliers.
Mr Irvin, who attacked Murray Goulburn’s retrospective price crash as being “immoral”, said he was proud in difficult circumstances to have been able to offer suppliers a $5-a-kilogram opening price. “Suppliers would have liked to see a better number but psychologically I think it’s important it’s not below $5,” Mr Irvin said.
“I know they won’t be happy, but it’s a difficult balancing act and we have to have a sustainable business, so I hope there is a level of acceptance that we have done our best in difficult circumstances.”
Bega is Australia’s sixth-biggest dairy company, processing about 700 million litres of milk annually into Bega-branded cheddar and mozzarella cheeses, Tatura cream cheeses and infant formula.
While only about 35 per cent of its products are exported, Mr Irvin said the company was not immune to the impact of a world oversupply of cheap dairy goods, particularly low-cost skim milk powder which is a byproduct of Bega’s cream cheese production.
Saputo-owned Warrnambool Cheese & Butter, which is a similar size to Bega Cheese, with both processing about 8 per cent of Australia’s milk pool, is offering its farmers $4.80 a kilogram (about 35c/l) for the 2017 financial year.
Mr Irvin said he had been approached by many unhappy and cash-strapped farmers in the past two months who wanted to stop supplying Murray Goulburn and Fonterra. But he said the company’s three factories at Bega, Coburg and Tatura did not have enough growing markets to be able to dramatically expand their milk intake, especially after encouraging Bega’s own regular suppliers to expand their milking herds in the past two years. “It’s going to be a sobering year for most farmers.” Mr Irvin said. “I recognise that even when we are paying $5 a kilogram milk solids this is less than it costs our farmers to produce that milk.
“I don’t think they can automatically expect (price increases through the season) either. We would require significant improvement in world markets for step-ups and we don’t think that going to happen until calendar year 17 at the earliest …”
The recent soaking wet spell is one bright hope for many dairy farmers in southern NSW, Victoria and Tasmania, raising hopes of unusually good grass growth in spring. This would reduce the need to irrigate pastures or buy expensive feed and grain through next summer.
Source: TheAustralian
