Anger after milk processors alter opening prices in defiance of new code
Dairy processors are facing backlash for revising their opening milk prices just days after announcing them, as the ACCC monitors dairy code compliance.
DAIRY processors have been accused of making a mockery of the industry’s new code of conduct, after they were forced to increase bare-minimum opening prices just days later.
Farmers are furious some dairy processors lifted their offerings just days after they were required to declare an opening price for the 2020-21 season.
Fonterra gave an opening figure of $6.06 a kg milk solids to suppliers on June 1 — outflanked by arch rivals Bega and Saputo, the latter offering $6.40 a kilogram of milk solids.
Bega offered $6.40 a kg in southern Victoria and $6.55 a kg milk solids in northern Victoria.
But just two days later, Fonterra stepped up to $6.40 a kg milk solids.
Burra was also forced to scramble to remain competitive — revising its opening farmgate price range from an initial $6.00-$6.40 to $6.10-$6.50 a kg milk solids.
The opening price revision comes as the Australian Competition and Consumer Commission confirmed it was monitoring dairy code compliance.
The Auckland-based processor was inundated with calls from aggrieved farmers, leading to Fonterra Australia Suppliers Council chairman John Dalton to issue an extraordinary email.
“We need to understand why the others have opening price at levels significantly above Fonterra’s (price),” Mr Dalton wrote to suppliers prior to the step up.
“I have had multiple contacts with (Fonterra bosses) René (Dedoncker) and Matt (Watt) since (June 1) and have communicated that it is critical for this to be addressed in the coming days.
“Some of you have already contacted supplier council members and the farm source team with your concerns which I endorse so we can take your concerns back to management. “Please be respectful, as these people are the messengers.”
Fonterra and Burra management were contacted by The Weekly Times but did not respond in time for deadline.
Last week’s pre-July 1 step ups have sparked concern within the sector over the differences between a “minimum price” and the traditional opening price.
“Generally speaking, processors cannot go below the minimum price or prices offered on June 1,” Australian Dairy Farmers president Terry Richardson said.
“As per Section 28 of the code, processors can do prospective step-downs in exceptional circumstances but cannot go below the minimum price. However ultimately, it depends on the terms and conditions in the signed contract. At this stage, all we have are basic contract terms.”
Ex-Fonterra supplier Bridget Goulding, who operates a dairy farm at Katunga, said the company’s move was unsurprising.
Ms Goulding and husband Tim supplied Bonlac-Fonterra for two decades but switched to Australian Consolidated Milk in recent years.
“Fonterra have bastardised the Australian dairy industry and this is just the latest move in a long pattern of behaviour,” Ms Goulding said.
“To go from $6.06 to $6.40 in a matter of days, that shows they’re not being genuine with their suppliers.
“The code of conduct is a good first start but what we’re seeing (are processors) looking at the loopholes, looking at ways to play around with farmers and there’s a point where the farmer says ‘hang on, do these people have my interests at heart?’ And the answer has been no.”
Fonterra supplier Glen Place, who operates a dairy farm at Koallah near Camperdown, said he was disappointed in Fonterra’s price game playing and urged the processor to do better.
“Most farmers would agree that the $6.06 figure was a ridiculously low price,” Mr Place said.
“I’m still supportive of Fonterra, but that support is starting to waiver a bit. We have a long family connection stretching back to Bonlac and the butter factory before that, but loyalty has to be a two-way street.
“Coming out with a strong opening price, rather than a low figure being raised to another figure, is the way it should be done. As a processor, you’ve got to be straight with the people that supply you.”
Meanwhile, the ACCC announced it is investigating possible breaches of the code of conduct by Midfield-owned processor, Union Dairy Company, after UDC didn’t publish milk supply agreements on its website, as required under the code.
“We are actively monitoring compliance with the dairy code and are closely engaging with farmers and processors,” ACCC deputy chairman Mick Keogh said.
“We are aware of compliance concerns about some processors, including UDC. We are investigating this matter.”
UDC chief operating officer Andrew Wellington said the processor’s original agreements were compliant and had not changed anything from the agreement.
“Rightly or wrongly, we didn’t put the document there for a click,” Mr Wellington said.
“And I’m glad that it wasn’t now, because we received all of our inquiry on the phone.
“The only people that have gone through the web to access it are competitive processors.”
“We’re certainly not behind a portal and we don’t think that’s a barrier. If you’re a farmer, we’ll get it straight out to you.”
United Dairyfarmers of Victoria president Paul Mumford said all processors knew about the June 1 deadline and needed to comply.
“June 1 wasn’t a surprise to processors, farmers or anyone in the industry. That’s been one of the great things about the code — there’s clarity that wasn’t there before,” he said.
On Fonterra, Mr Mumford said the code had worked to force a pre-July step up.
“Fonterra were being conservative in nature. However, with a reduced milk pool and their competitors at $6.40, they needed to step up otherwise they would lose suppliers. Simple as that.”
In a VirtuAg webinar hosted by The Weekly Times last week, Dairy Australia chief executive David Nation said the new pricing system provided greater assurance at the farmgate.
“The opening prices in southern Australia are higher than analysts predicted but they do represent a softening in prices from the current year,” he said.
“We need the whole dairy supply chain to be successful and profitable and the new settings with the mandatory code will hopefully give more confidence to farmers.
“As we enter this global recession, having minimum milk prices is such a powerful tool to give assurance about the year ahead.
“As you might expect, focus will turn to input prices and we’ve all got a keen eye on trends in grain, hay and water prices.
In an address to the Rural Press Club of Victoria last week, Federal Agriculture Minister David Littleproud hinted further reform of the mandatory code was likely.
“I was never of the view that (the mandatory code) was a silver bullet, this was one of the pieces of the puzzle,” he said.
“And that’s why (the June 1 figures) sets the first guiderails and you are going to see that processors and players will push those barriers and those boundaries, and my job is to make sure do they need to be strengthened.
“That’s why I’ll be engaging with the ACCC, and looking at some complementary measures, and making sure the supermarkets are part of that as well because they have a role to play in this as well.”
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