There is great uncertainty around the prices farmers will be offered at the start of the new financial year in July. Coronavirus has caused chaos throughout the world including on the domestic and international dairy market. As a result, demand for dairy products has been altered and in many cases the price of products has been reduced.
In Queensland, Lion suppliers are extremely unhappy with the price they receive. At around 6c/litre below the market price in southern Queensland and around 9c/L less in north Queensland than Lactalis and Norco suppliers in southern Queensland, it is hardly surprising. These suppliers are keen to see Lion match the price paid by other major processors in Queensland receive and would like to see Lion make up for the underpayment that has occurred over the past year. If this doesn't occur, many Lion farmers will either change processors or leave the industry.
For Norco suppliers, prices increased substantially in January this year. However, prices in July to December 2019 were at lower levels and there was a strong expectation from farmers that prices in July to December this year would be significantly higher to make up the shortfall.
It would cause significant farmer exits and production decreases if prices in July to December were reduced. Even if prices were maintained in July to December, some Norco farmers would be expected to exit as production is unlikely to increase as it normally would during spring due to the ongoing drought conditions.
Lactalis suppliers have been able to lock down a farmgate prices until December at a price that many farmers see as reasonable in the current uncertain market.
All processors need to be aware of the likely impacts on production and farmer numbers from lowering prices or maintaining low prices in the current market.
Lion must comply with its contractual obligation to set a commercially competitive price and make up for its uncompetitive price for the past year. And Norco must at least maintain its price in July and use this as a platform to increase its price later in the year.
If processors use the current market uncertainty to pay farmers a low-ball price, permanently lower farm numbers, lower production and increased trucking of milk from Victoria at high cost will be the obvious consequence.
What Australian consumers have learned through the pandemic, is the real value of our domestic industries and the importance of our food security. It is up to processors and retailers to follow suit and pay accordingly.
