Devastated by the behaviour of processors such as Murray Goulburn and Fonterra — which slashed milk prices without warning seven weeks ago and applied the lower prices retrospectively — farmers say the days of supplying milk largely on trust to a single company without an individual contract are over.
Farmers believe the latest price crisis — which deepened this week when Victorian processor Burra Foods shocked milk producers with a rock bottom farmgate milk price of 32c a litre ($4.40 a kilogram) for the coming 2016-17 season — shows they are bearing all the risk of global market volatility, while the big companies continue to declare profits for shareholders and investors.
Australian Dairy Farmers president David Basham pledged yesterday to start negotiating a fairer deal for all farmer-suppliers to the major dairy processors exposed to export markets, such as MG, Fonterra, Bega Cheese, Burra, and Warrnambool Cheese & Butter.
He wants farmers to be able to choose, according to their circumstances, from a variety of contract options, including some that may lock in a minimum or average milk price for a full year in return for sacrificing potential price peaks.
“The issue at the moment is that lot of dairy farmers don’t have formal contracts at all with their milk processor.
“These very open agreements have worked in the past based on trust, but as we have seen in these past few weeks, that world is changing,” Mr Basham said.
“A lot of that trust has gone. There is need for greater security for farmers and a conviction that some of the (current) price risk should be lessened and more evenly shared with the companies.”
He said the behaviour of Murray Goulburn, the biggest dairy processor and nominally still a cooperative, in crashing milk prices and loading its farmers up with $200 million of debt — while still declaring $40m of profits and paying investors dividends — was the catalyst to fight for more hard-headed milk contracts. He said the future must include offering farmers choices.
Some dairy producers without debt would be prepared to ride the price rollercoaster to benefit from market highs, while others would prefer more stability, less risk and a slightly lower but guaranteed average milk price.
Developing a milk futures market may also be another tool to help dairy farmers better withstand global volatility.
Rival NSW dairy farmer organisation Dairy Connect is also pushing for change, advocating farmers be able to choose from month to month which processor to sell their milk to, according to the company offering the best deal.
The move to protect dairy farmers’ livelihoods and return stability to their businesses follows fears 20 per cent of the 4500 dairy farmers in Victoria and Tasmania — mainly young sharefarmers starting out — will be sent broke this year by the milk price collapse.
It coincides with an inquiry by the Australian Consumer & Competition Commission into the actions of Murray Goulburn and Fonterra this year in their dealings with, respectively, the 2600 and 1100 farmers who exclusively supply each processor with milk daily. ACCC chair Rod Sims has flagged the investigation will focus heavily on contractual arrangements — or lack of them — between farmers and processors, and the power inequity in such an arrangement, with a finding of serious unconscionable conduct a potential outcome.
Most dairy farmers now choose which of two or three processors picking up milk in their area they will supply too, based on chats with local representatives and the going price.
There is usually no signed contract. The arrangement is simply that as long as the farmer supplies milk that meets quality and hygiene standards, the company truck will come to the farm daily and pick up as much milk as the farmer can produce, with a monthly cheque paid according to the price set by the processor.
Usually step-ups or milk price rises are paid at the end of the year adding between 10 per cent and 20 per cent to the opening price of the July season. These have effectively become loyalty bonuses as much as a reflection of market conditions in recent years.
Source: TheAustralian
http://www.theaustralian.com.au/business/companies/angry-dairy-farmers-push-for-rethink-on-milk-contracts/news-story/cf5d829f2dd6ce736b6b444af6d43604