$6/kg cheese slices farmers’ income

Cheese discounts cost farmers


News
End of year farm gate price for milk solids could reduce by 10c/kg as a direct result of discounting on cheese.

End of year farm gate price for milk solids could reduce by 10c/kg as a direct result of discounting on cheese.

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All the public relations work by retailers ensuring their contributions to ‘farmers funds’ will be a drop in the ocean compared with the real damage done by slashing farm gate prices as a result of discount cheese.

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The news that discount cheese is having a detrimental effect on farm gate prices in Southern Australia will come as no great surprise to dairy farmers around the country.

Steve Spencer from Freshagenda estimated the end of year farm gate price for milk solids would reduce by 10 cents per kilogram as a direct result of discounting on cheese by supermarkets. If this is correct, it will reduce the farm gate value in the Southern Australia milk pool by over $50 million. When you add in ripple effects to other domestic markets, this number would surpass $60 million.

All the public relations work by retailers ensuring their contributions to ‘farmers funds’ will be a drop in the ocean compared with the real damage done by slashing farm gate prices as a result of discount cheese.

Prior to deregulation of the Australian dairy industry, the quota price provided some relief when export prices became unsustainably low. Up until five years ago, there remained enough domestic premium to average out the farm gate prices. However, thanks in no part to the pressure from retailers to base the market at export parity, any substantive domestic premium for many manufactured products has disappeared.

The news of Murray Goulburn (MG) accepting an offer from Canadian company Saputo for an asset sale throws another dynamic into the unsustainable discounting that has occurred. There is no doubt MG’s troubles in the last 18 months have had an extremely negative effect on all farmers’ milk price.

Much of Australia’s farm gate price has some reference to the price achieved by MG farmers. The collapse of Southern prices in May 2016 simply allowed other processors to pay less than they would have with a fully operational MG in the marketplace.

Saputo’s focus on the export market will be an interesting mix with MG’s current milk and cheese contracts. The outcome of Saputo’s future direction with these retailer contracts will have a substantial effect on Queensland dairy farms and the competitive price at which milk is purchased.

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