DAIRY farmers have been urged to make sure they are comparing apples with apples should they go down the path of ‘processor shopping’ based on opening milk prices.
Processors tailor pay schemes to attract the type of supply that best matches the markets they sell into.
Because no two dairy farms are the same, that means producers need to look carefully at where their best opportunities are, given their individual set of circumstances, industry leaders say.
And always read the fine print.
“Take into account cartage, quality and net price versus headline price - it’s the final price you end up with in your pocket that counts,” said Queensland Dairy Organisation vice president Ross McInnes.
Processors themselves agree.
In fact, Lismore-based Norco says even the type of business model a processor operates under could be a consideration.
Norco’s general manager of milk supply Rob Randall said for most Victorian processors, which are heavily influenced by the conversion of milk to commodity products such as butter and milk powders, a kilogram of milk solids is used as the major payment element.
“For Norco, given the high percentage of our market is in drinking milk sales, cents per litre and milk quality are important elements in our payment scheme.”
Norco also adjusts to encourage higher milk components to assist with its ice cream production and to recognise the efficiencies in higher-volume farms.
It also has a supplier patronage scheme where farmers receive a bonus based on what they spend at the co-operative’s rural stores.
So for a consumer asking ‘how much do you pay your farmers’, it’s not a simple answer, according to Mr Randall.
“I can say, however, that for 2015-16 Norco paid, converted to kilograms of milk solids a total of $7.85/kg and that compared to the $4.40/kg to $5 the Victorian processors have recently announced,” he said.
Most processors in NSW and Queensland targeting the fresh milk market have similar elements that add up to a final income, including cents per litre of milk supplied, volume based bonuses, quality bonuses or penalties, fat and protein bonuses and penalties, freight charges and milk supply agreement term incentives.
Clearly, there are a number of areas where suppliers can concentrate to increase their overall income.
“Milk quality is the backbone of our Norco brand and an important part of our offer to customers and consumers,” Mr Randall said.
“In my analysis versus other processor pay schemes Norco suppliers generally do better with higher components.
“We are a co-operative so we look to maximise the return on every single litre of milk we receive to get the best return for our dairy farmers.
“While milk price is indeed one of the most significant drivers when a farmer considers the different processor payment schemes, we certainly find that many of our suppliers consider being a member of a co-operative a big factor.”
That means profits are returned back to members, not transferred to outside shareholders or overseas owners.
Norco sees ‘shopping around’ as a good thing for the industry, ensuring there is competition for milk supply.
It says more than 95pc of its suppliers chose to extend their latest Milk Supply Agreements with Norco.
There was positivity in the northern milk game currently, Mr Randall said.
Norco farms were generally increasing milk volumes year-on-year which was helping spread their fixed costs for a better rate of return and lower cents per litre costs, he said.
“In the 2015-16 year we saw northern NSW grow in volume by 7pc and Queensland by 5% - this is significantly different to the industry numbers from Dairy Australia where Queensland volume has generally decreased year-on-year,” he said.
“Norco is also supporting new entrants to the industry at levels not seen before.
“In the past two years, 14 new farms have come onboard and while these may start supply at lower volumes, we are taking a long-term view and providing these new entrants with the opportunity to grow and contribute to the industry as a whole.
