PRACTICAL examples demonstrating how the laws of supply and demand were simply not delivering a fair farmgate milk price were provided by frustrated and desperate producers this week as part of a fair trading investigation.
The Australian Competition and Consumer Commission’s first public forums collecting information for its inquiry into dairy trading practices attracted far larger turnouts than expected.
More than 200 farmers attended a meeting at Taree on the NSW Mid North Coast on Tuesday and while it was not open to media, many spoke afterwards about issues raised.
Lack of bargaining power in contract negotiations, milk prices under the cost of production, lack of information about where profits flow through the supply chain and the fact dairy farmers are expected to wear risks long after milk has left the farm were the core issues.
Plenty of concern was also raised about exclusivity clauses in contracts, processors buying milk from other processors and the effect the shrinking dairy industry was having on regional and rural towns.
Angst over the devastation $1-a-litre retail milk has reaped was expressed in abundance and there were some suggestions regulation was required to put a floor in farmgate prices that is above the cost of production.
Wingham producer Rob Walsh summed up the feeling about the risk milk producers carry when he said farmers were currently bearing the weight of helping big southern processor Murray Goulburn pay back the cost of mistakes its decision makers have made.
With his brother Les, Mr Walsh milks 120 head at “Hill View” and also has beef cattle.
“When we take our steers to the saleyards, the abattoir that buys them can’t come back and extract money from us if it isn’t able to sell the product at the other end for a good profit,” he said.
“In no other business does the farmer have to wear risk once his product is delivered.
“Processors are big business. If they make a mistake and that results in a loss, they should cop it on the chin and wear that loss.
“We certainly don’t share in the big profits when the processor is reaping those in.”
NSW Farmers put forward the idea of following in Ireland’s footsteps and introducing a new price reporting system that’s fairer for farmers.
Annual retrospective price reporting takes the mystery out of the supply chain, and improves the business relationship between companies and farmers, it argued.
Chief executive officer Matt Brand said the Taree meeting was a good start in helping to lift the lid on the frustrations the dairy sector had been living with for a long time.
Just how unnecessarily complex the pay system dairy farmers operated under was made very clear at the forum, he said.
He pointed out $1-a-litre milk had not driven milk consumption as retailers had touted when it was brought in.
That, any many other retailer policies, such as those relating to out-of-stock and shelving practices, needed to be closely looked at by the ACCC, he said.
Wingham producer Peter Brown, who milks 220 mostly Holsteins to send 1.7 million litres to Murray Goulburn per annum, thinks the Irish model has potential.
He runs his farm with son David, who represents the sixth generation of Browns in dairying.
But the two now have plans in place to exit the industry.
“The milk price is below what it costs us to produce and you simply can’t keep going forever losing money,” Mr Brown said.
Most producers had faith the ACCC inquiry was worthwhile and were particularly happy agriculture commissioner Mick Keogh was at the helm, whom they said had a good comprehension of the inequities they were dealing with.
Whether the political will would be there to act on ACCC recommendations stemming from the inquiry was another question, they said.
Speaking after the forum, Mr Keogh said a broad range of issues were raised, mainly around the nature of farmgate price negotiations and contracts, flowing into the role supermarkets played and the relationships between global and local prices.
“In theory there is competition for the supply of milk from dairy farmers but we have heard a lot today about the practical impediments to that competition actually working and farmers being in a position where they can’t actually exercise choice about who they want to supply,” he said.
“Farmers were clearly saying the imbalance of market power is the biggest issue they face.
“They feel they don’t have any real opportunity to negotiate or to influence the contracts they are offered.”
Mr Keogh said the forum reinforced that there was quite a degree of difficulty in a dairy farmer switching between processors.
“There are a whole range of mechanisms that make that difficult, from the timing of the renewing of contracts to whether or not an alternative processor is prepared to take them on,” he said.
Mr Keogh said due to the way the inquiry was commissioned, under a certain section of the Australian Competition and Consumer Act, the ACCC had mandatory information disclosure powers.
That would mean big retailers and processors, historically very guarded about policies and strategies when it comes to setting farmgate prices, would be compelled to provide information.
Mr Keogh said that process had started and information was currently being analysed. There may be ongoing requests for further information, he said.
At a minimum, the inquiry would enable a detailed understanding of the margins and markets shares that operate in the dairy industry in Australia, he said.
“We will have a good understanding of the full operation of the market, region by region,” he said.
“Coming out of that, the ACCC will need to consider what recommendations it would make to government.”
Asked if serious action against companies might result, he said: “If information comes to light that indicates a breach of the Act, that would be a signal for prosecution, there is no doubt about that.
“The inquiry doesn’t aim for that but certainly it could trigger that.”
The public forums continue with venues in Victoria from next week and the week after, followed by Western Australia, South Australia and Tasmania in March.
Producers who can’t make the forums but would like to contribute can email or phone the ACCC.
A report is due to be submitted to the Federal Treasurer by November this year.
What they said
Keith Watkins “Wakoreena” at Dungog milks 400 Holsteins and says some of the trading practices in the dairy industry are dark age.
“There are a lot of desperate dairy farmers out there, barely existing on today’s milk price. They tell us to get smarter - the truth is dairy farmers have exhausted efficiencies.
“We are kept in the dark as to how farmgate prices are set and we have no bargaining power. We have to take whatever they offer.”
Julie Moore “Meadowvale” at Dorrigo, milks a 140 head mixed herd.
“The price we are paid today is the same as what it was before the industry was deregulated, yet our costs have at least doubled,” she said.
“Who else is still on the same wage they were 17 years ago?
“Because we have a perishable product we have no ability to hold out or put pressure on for a better price.”
Jane Polson “Oxley Vale Holsteins” at Oxley Island said there simply wasn’t any transparency in the dairy supply chain.
“If we don’t keep Australia’s dairy industry alive, regional towns will suffer and so will consumer choice,” she said.
“One thing that needs to be bought out in the open is the fact processors trade with each other, which means the supply and demand principle is thrown out the window.
“When a processor is short of milk, instead of going to the farmer and paying a price that would reflect that extra demand, they just go to another processor.”
Fifth generation dairy farmer James Neal, milks 700 at Oxley Island, with his father Peter.
“The big thing is market power, farmers have no bargaining power,” he said.
“Poor competition legislation has allowed Coles and Woolworths to control 80 per cent of the supermarket business and milk producers are at their mercy.
“There is no understanding of what is involved in producing milk among the big multinationals, nor the government.
“When a bottle of water is more expensive than a carton of milk, we can be certain we are dealing with a lack of understanding of how milk is produced.
“A farmer can not turn the milk production on and off. We have millions of dollars tied up in assets. When we’re all gone, there will be no quick comeback.
“As it is, new people can not get into the game anymore. To be a dairy farmer today you must inherit the farm - that’s simply not a sustainable industry.”