Pay a little less in the spring than the rest of the season and ensure every month’s worth of milk is independent from other months.
Incentives encouraging a certain percentage of the annual production to be during a prescribed period should be dropped, along with the growth incentive.
But he said the value of milk on a particular day was a separate issue to when farmers were paid for this milk.
“To me the most inequitable and complex payment systems are Murray Goulburn and Warrnambool Cheese and Butter (Saputo), but Saputo is able to overcome the inequity by paying more overall, dragging the population up,” he said.
MG recently flagged it was looking at a more conservative opening price structure — similar to New Zealand — where it would start the season at about 60 per cent of the final price and step up, compared to where it starts now at about 90 per cent.
New Zealand exports about 95 per cent of its dairy produce and the country’s dominant processor co-operative, Fonterra, collects about 87 per cent of the milk produced. Fonterra sets its farmgate milk price based on a certain methodology. This includes determining the revenue Fonterra would earn if the equivalent of all the milk it collected was converted into commodity specification of whole milk powder, skim milk powder and other byproducts. Prices are converted to New Zealand dollars and costs are deducted. Farmers are paid for 12 months of milk across 16 months.
XCheque director and analyst Jon Hauser said there was merit in milk processors forecasting more conservatively and then stepping up. “(They should) forecast more conservatively when the market is weakening,” he said.
He said everyone knew the market was falling last season but no one knew how far it would fall and how long it would take. “The industry needs to not shout from the roof tops when the market price is high, it will fall,” he said. “It is terrific when it is $6.50kg/MS but no one wants to tell farmers that the next year could be $5 or $5.50kg/MS.”
United Dairyfarmers of Victoria president Adam Jenkins said the industry needed to look at how it could be more risk-averse and resilient.
He suggested the payment systems could help if the farmgate price reflected what the market was returning at that time. “There’s in excess of 32 elements that go into milk pricing (on top of the base price). We enjoy the competition but has this put the farmgate prices out of whack?” he said.
The UDV will again be reviewing milk payment systems and hopes to deliver some of its findings in January or February next year.
Source: WeeklyTimes
Link: http://www.weeklytimesnow.com.au/agribusiness/dairy/milk-payments-dairy-industry-push-for-simple-system/news-story/1b058b16af074dcb7b679a7e1a50cfe1