Lion announced last week that it is giving 12 months’ notice to its suppliers of a new payment model in south east Queensland and NSW.
The system is to come into effect for the 2019/2020 milk season which will increase suppliers’ reward for butterfat and cap the reward paid on protein. This model will take effect from FY2019/2020. This would mean the fat to protein ratio goes from 1.5:1 to 1:1 in relation to its bonus system.
Whether the adjustment is good, bad or neutral will depend on several factors, the main one being available diet. To increase the butterfat component farmers may need to adjust the type of feed they use and any changes to the make-up of feed or to the make-up of the dairy herd are expensive and often unprofitable in the short term.
South east Queensland dairy farmers are already doing it tough. While the new payment model does not come into effect till 2019, the financial flow through effect from the current drought conditions in both Queensland and NSW will make it difficult for farmers to achieve current bonus levels in the short term when they are having to import basics such as silage and hay at exorbitant costs.
Even if we had significant rain in the next six months so that we were no longer drought-declared, it will still take about 12 to 18 months to get back on track.
Without full transparency on the payment model used by all the major processors, it is difficult to evaluate this announcement fully. If Lion is simply responding to market demand for higher fat and not making it more difficult for its suppliers to get their current (or better) farm gate price, then QDO accepts the change.
We understand that the payment model is not yet set in stone so we urge members to go to DFMC or direct supplier meetings over the coming months to have their voices heard. We would also urge those members to have their income estimations reviewed to see what the change will do to the bottom line.