Milk price rise needed to beat drought costs, or else dairy exodus tipped

Soaring feed costs will force up to a third of NSW and Queensland dairy farmers to quit the industry if significant rain does not arrive to ease eastern Australia’s drought within months, or milk prices don’t rise.

Dairy farmers say the industry badly needs access to more sustainable, quality feed supplies and better farmgate returns to cover feed costs which have doubled in the past few months.

With nervous dairy companies already jockeying to secure enough fresh milk supplies to maintain their market commitments, latest farmer survival rate estimates from Queensland Dairyfarmers Organisation have highlighted the hurt being felt in the wake of big blowouts in grain, hay and silage costs.

QDO is pushing hard for supermarkets to agree to a 10 cent a litre increase in all fresh milk prices – including $1 a litre house brand milk lines – to funnel much needed extra payments back into farmers’ withered feed budgets.

A 10c retail price rise could potentially add an extra $250 million a year to dairy farmer earnings.

QDO claims every litre of milk its members now produce costs them at least 20c more in fodder expenses than they were outlaying three months ago.

That cost increase alone is equivalent to about a third of their total farmgate payments.

Given milk was worth $1.30/litre or more prior to 2011, it seems a pretty fair ask supermarkets to break their $1/litre mindset now when seasonal conditions are so tough for farmers

Eric Danzi, Queensland Dairyfarmers Organisation

Other farmer groups and individuals Australia-wide have also been loudly critical of the supermarkets, particularly Coles, for refusing to budge on $1/litre milk, which became the standard discount price for house brands when the retailer initiated its “Down Down” price campaign back in January 2011.

Coles won’t comment on the 10c/litre price lift proposal, but said it had already directed more than $11m to drought affected communities, including $6m-plus which came from funds raised and matched by the retailer at store checkouts.

“We appreciate the drought’s devastating impact on farmers in all sectors – from beef and lamb producers to horticulture, poultry, cropping and dairy,” a company spokesman said.  

“Coles decided the most effective way we can assist farmers affected by drought is to raise and match funds at our checkouts to provide to the Country Women’s Association to help cover farmers’ household expenses.”

However, the dairy sector points out while farmgate returns stagnate, its drought cost hikes are also compounded by other increasing input expenses, particularly labour and energy price rises, which have hit farmers hard.

Worried Norco pays extra

The NSW-based Norco co-operative has responded by announcing a temporary five cents/litre increase to suppliers’ base payments, funded from its own bottom line.

The co-op said its 200 farms in northern NSW and southern Queensland can’t wait any longer for the supermarkets to recognise the seriousness of the cost blowout problem.

Norco’s milk recivals slipped 11 per cent year-on-year in July and August in direct response to feed shortages and rising costs.

The company has also ramped up its counselling services to struggling farmers and has its farm services division working in overdrive to find new fodder supplies after a dry, cold winter zapped pasture feed prospects on Norco farms from the Hunter Valley to Kingaroy in Queensland.

Chairman, Greg McNamara, said Norco began talking to retailers in June about the serious need for better farmgate returns to help them cope with dry conditions, especially in south-east Queensland where 30pc to 40pc of its supplies originate.

We know this will be of direct benefit to help address some ... of the rapidly increasing costs of production

Greg McNamara, Norco

“Our base price increase for milk alone will inject approximately $1.8m over a two month period into our members’ businesses,” he said.

“We know this will be of direct benefit to help address some, although not all, of the rapidly increasing costs of production that our farmers have been confronted with.”

With grain prices jumping from $250 a tonne to $500/t in just a few months, he said dairy farmers everywhere had moved into drought survival mode, culling milker numbers to trim feed costs.

Culling cows to save farm

“The lesson we learnt when drought hit in the 2000s was those who culled cows early were more likely to be the farmers who survived,” Mr McNamara said.

“Unless you get paid more to cover your higher feed costs your profitability declines with the more cows you feed in times like this.”

Australian Dairy Farmers director and Wagga Wagga farmer, Simone Jolliffe, said most of Australia’s 5800 milk producers faced tough feed budget decisions in the next three or four months.

While southern Australian farms were generally not, yet, as badly off as those further north, milk producers’ options would centre on borrowing more funds to buy what  good quality grain, or preserved fodder they could get, or selling cows to help pay extra feed costs and to reduce total supplementary feed consumption.

Much would hanging on the success of what grain crops survived the tough winter, and the output from pasture or forage crop growth in spring.

Mrs Jolliffe’s own family’s herd production at Currajugle Holsteins had slipped almost 40pc this year.

“Conditions here got tough during a very wet winter in 2016, then turned into a dry summer-autumn and haven’t improved since,” she said.

Farmer attrition rate grows

QDO executive officer, Eric Danzi, said drought and other costs pressures forced about 6pc of Queensland dairy farmers to leave the industry last year.

He anticipated almost another third could follow this year unless payments improved and seasonal conditions turned around.

That could mean up to 100 Queensland farmers quitting dairying.

Mr Danzi noted major Queensland processor, Parmalat had acknowledged farmers’ cost price squeeze and was promising to pass on the full increase in any retail price rise, however the supermarkets remained uncommitted.

Nobody’s moving unless Coles also agrees to

Eric Danzi, QDO

“I think we’ve got Woolies across the line on this issue, and comments we’ve had from Aldi suggest they will follow, but nobody’s moving unless Coles also agrees to,” he said.

“Coles is the problem.”  

Who’ll move first?

However, Coles officials are politely doubting their rivals’ sincerity, saying if other retailers felt a 10c/l shelf price increase was the right thing to do, what was to stop them making the first move.

Regardless, there has been robust public support Australia-wide for a retail price lift to help farmers at such a critical time.

“Given milk was worth $1.30/litre or more prior to 2011, it seems a pretty fair ask supermarkets to break their $1/litre mindset now when seasonal conditions are so tough for farmers,” Mr Danzi said.

The Federal Agriculture Minister David Littleproud threw his his support behind the 10c/litre campaign last week saying he could could help facilitate a legislated levy as a temporary measure to ensure the money went directly to farmers.

Prime Minister Scott Morrison has been less committed to supporting a government imposed tax,  but he was prepared to hear arguments on milk pricing from the dairy sector and Mr Littleproud.

However, Norco’s Mr McNamara said while the retail milk price rise campaign was “well founded with good intentions”, any increase should not be permanent, not a temporary drought relief measure.

The price rise should be an “embedded increase” flowing through to farmgate milk values, to address the escalating costs of production.

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