Organic milk a hot commodity as suppliers wait for higher prices
Dairy companies are scrambling to secure organic milk, as the fallout between Wattle Health Australia and Organic Dairy Farmers of Australia reaches a toxic low point.
ORGANIC milk has emerged as dairy’s hottest commodity.
Dairy companies are scrambling to secure organic supply, with processors in turmoil after company closures and battles over manufacturing agreements.
Some organic dairy farmers have been holding out to the last moment on signing contracts, hoping for higher prices which last season reached $10 a kilogram milk solids at the farmgate.
Tasmania farmers supplying Bellamy’s Organic are being offered $9.48/kg MS this season.
This compares to the current $6.40/kg for conventional milk on offer by the major processors.
All eyes are now on Organic Dairy Farmers of Australia, which is expected to announce a contract with a new partner as early as today and may set a mainland benchmark price.
ODFA, which placed itself in voluntary administration on May 15, hopes the new deal will pay off the $8 million it owes National Australia Bank and get the company out of administration.
Sources said the move would see ODFA walk away from former arrangements to supply Wattle Health Australia with organic milk for the Corio Bay Dairy Group spray dryer joint venture at Geelong.
Wattle Health Australia has been desperately trying to shore up its organic milk supply after a massive fallout with ODFA.
It comes as WHA is close to signing an agreement with Shepparton Partners Collective on a $23 million loan to allow completion of the $60 million spray dryer which is about nine months behind schedule.
The fallout between WHA and ODFA comes as dairy farmer sources report Australian Consolidated Milk pressured its organic dairy farmers to sign supply contracts by last Friday in time for the new season’s milk collection which begins today.
It is understood some suppliers were concerned they were only receiving $8.60 a kilogram of milk solids after receiving $9/kg in 2019-20, plus a drought payment from Bellamy’s Organic.
Industry sources claim Bellamy’s Organic is shifting production for organic milk infant formula destined for China from Australia to New Zealand.
Most of Bellamy’s organic milk powder used in its infant formula had come from NZ and the Netherlands since the business was established.
Nutritional ingredients were added in Australia and it was canned for export to China as an Australian product.
Industry sources said Bellamy’s Organic had missed out on brand slots for China from Australia and its parent, China Mengniu Dairy Company, was moving some canning operations to NZ.
The sources said Bellamy’s existing canning facilities in Australia would be used to supply the Australian market.
Bellamy’s Organic did respond to The Weekly Times request for confirmation.
Bellamy’s Organic has been using Australian Consolidated Milk and Bega Cheese to source organic milk to fulfil its infant formula contracts but its parent, China Mengniu Dairy Company, has just enlisted Fonterra to collect milk from six Tasmanian farmers who were formerly members of Organic Dairy Farmers of Australia.
From today, the six farmers will paid $9.15 a kilogram of milk solids by Fonterra under a three-year contract but will also receive a $1/kg sign-on bonus by Bellamy’s Organic.
One of the Tasmanian farmers, who did not wish to be named, said the bonus, amortised over three years, meant the contract amounted to $9.48/kg MS but farmers would not receive any further step-up payments during the year.
While a $9.48/kg price is well above ACM’s price, pressure may be brought on the Girgarre dairy company to raise its returns to its dairy suppliers, especially since the ODFA deal is expected to offer suppliers a much higher price than $8.60/kg MS.
ACM commercial general manager Peter Jones said his company was taking a “cautious approach” in setting a base price of $8.60/kg MS as there was a lot of uncertainty and volatility in the market.
Mr Jones said some of its suppliers didn’t want to sign contracts by last Friday but they had now all done so.
He said ACM supplied organic milk to a number of customers, including Bellamy’s Organic, and had built its plant at Girgarre to process specialty milks.
“We’ve supported our organic dairy farmers better than anyone,” Mr Jones said.
“In Australia, there has been a lot of industry disruption.
“We think we’ve got the best long-term strategy to look after suppliers.”
ACM claims it now has the largest pool of organic milk, even surpassing ODFA.
The Corio Bay Dairy Group joint venture with WHA was a lifeline for ODFA, which would use the spray dryer to process the skim milk by-product from organic butter production at its Geelong factory.
But the tardiness in getting the spray dryer built put pressure on ODFA’s finances and its relationship with WHA.
“We were buddies and talking all the time but we’re not now,” one ODFA source said, who did not wish to be named.
The ODFA board placed the organic dairy company in administration on May 15 to force a deal that would allow it to repay National Australia Bank the $8 million it was owed and the $11 million owed to unsecured creditors, many of which were its dairy farmer members.
A week later, NAB appointed Tim Norman and Sal Algeri, of Deloitte, as receivers to sell the ODFA site but angered dairy farmers when they advertised the organic milk supply as part of any sale with a prospective buyer.
Organic dairy farmers said their milk was not part of the deal.
But one farmer told The Weekly Times negotiations for a sale clearly indicated the organic milk supplied by ODFA members was a key asset.
Deloitte said the sale process had attracted a large volume of interest in the site and the receivers were currently short-listing parties.
“They are also working closely with the farmer, and other suppliers to the business during this period as they seek to achieve an outcome that is in the best interests of all stakeholders,” a spokesman said.
A WHA spokesman said neither WHA nor CBDG now had any direct relationship with ODFA.
“With ODFA going into administration all previous agreements have been subsequently rescinded,” he said.
WHA would not comment further.
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