Dairy farmers warn of struggle under farm gate price cuts

DAIRY farmers grappling with news of huge price reductions fear it will force some producers out of the $440 million industry.

DAIRY farmers grappling with details of last week’s huge price reductions fear it will force some producers out of Tasmania’s valuable $440 million industry.

Fonterra announced it would cut its overall milk price from $5.60 per kilogram of milk solids back to $5kg retrospectively. About 250 farms supply Fonterra.

In what many producers consider a cruel blow, this means farmers who have already been paid at the higher amount over the majority of the season will be left owing the company money.

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The news comes after Australia’s largest milk processor, Murray Goulburn, also cut its farmgate price, from $5.60/kg to between $4.75/kg and $5/kg.

Both companies held meetings with suppliers this week and a review of the price cuts looms.

Lion Dairy and Drinks also announced a price cut adjusting its price for June down by 4.65 cents per litre. This will affect a small number of Tasmanian suppliers who are operating under variable pricing contracts for the 2015-2016 season.

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Northern producer and Fonterra winter milk supplier Kelvin Howe, from Caveside, said it was one of the worst times he had seen in his 40 years in the industry.

Mr Howe said after a difficult season because of the record dry conditions, they had planned carefully for their winter milking period, putting in extra fodder crops and buying in silage.

“It was only a few weeks ago they were telling us everything was OK and they would hold the $5.60 price, so that’s what we planned around ... now they’ve gone and done this,” he said.

“We just have to sit and wait at the moment.

“They’re saying the opening price will be somewhere between $4 and $5, but probably closer to $4, and if it is that’s below the cost of production.”

Dairy farmer Dave Jones called the price cut “unfair”. Picture: RICHARD JUPE

The Australian Securities and ­Investments Commission has weighed formally investigating Murray Goulburn over its corporate disclosure practices after its shock downgrades to profits and its farmgate milk price cut led to the sudden ­resignation of chief executive Gary Helou.

Dave Jones, a dairy farmer from Hamilton in the Central Highlands, said the milk cuts would decimate the industry.

“The price cut is unfair, and will hurt many people,” he said.

Industry body DairyTas is developing a “Tactics for Tight Times Program” to support farmers.

“We understand the difficulty that the changes have placed many farmers in. Many farmers are dealing with an unprecedented situation,” DairyTas executive officer Mark Smith.

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Tasmanian Farmers and Graziers Association president Wayne Johnston said the milk price cuts would hit Tasmania’s rural communities and businesses hard.

“When in the business of farming such announcements at the end of the season can be devastating,” Mr Johnston said.

“It is clear that it is time for a broader discussion between producers and milk processors to look at a way to ensure that producers can have confidence in the prices set at the beginning of the season.”

TFGA president Wayne Johnston. Picture: RICHARD JUPE

TFGA dairy council chairman and North-East farmer Andrew Lester is calling for a review of the pricing structure in the Australian dairy industry.

“We’re also calling on the processors to make announcements on the opening season price as soon as possible, so that farmers have the certainty they need to plan for the season ahead,” Mr Lester said.

“The price clawback clause is standard in both company’s supply agreements.”

Mr Lester said he only knew of one other time it had been used and that was back in 2008 when the global financial crisis hit.

“It was a very different situation back then because it was a lot earlier in the season,” he said.

“This is 10 times worse than that was. The dairy industry is a vital part of the Tasmanian economy. The flow-on effects from these decisions will affect rural communities throughout the state.”

Mr Lester said the TFGA was encouraging dairy producers to seek help and advice to manage the difficulties.

“I’d just like to say to farmers don’t make any rash decisions, make sure you’re getting some advice,” he said.

For more information or free financial counselling, contact Rural Business Tasmania at www.ruralbusinesstasmania.org.au or call 1300 883 276, Rural Alive and Well on 1300 4357 6283 or dairytas.com.au.