Australian dairy farmers look towards bumper 2021-22 season
This year’s opening prices have been a tale of bid and counterbid with processors having to go the extra mile for primary producers.
About a decade ago, Canberra forced retailers to introduce what was dubbed “unit price information.” So when the average Australian shopper went down aisle seven of their local supermarket, they could work out whether a two kilo packet of flour was cheaper than the 500 gram alternative in seconds, rather than spending minutes of mental arithmetic every time they had to make a purchasing decision.
With the price race to towards the 2021-22 season, Australia’s dairy farmers probably wish they same rules applied at the farmgate.
Not that the national competition watchdog hasn’t tried.
The mandatory minimum code was first put into practice last year — compelling Australia’s dairy processors to publicly declare their opening price at 2pm on June 1, a full month out from the start of the season.
The Australian Competition and Consumer Commission (ACCC) clamped down on two ‘oversight’ cases by processors last year but all things considered, the manufacturing sector played ball.
Of Australia’s big three processors, Saputo offered $6.40/kg milk solids to start the 2020-21 season while Bega split its opening figure geographically — $6.40 for southern Victoria and $6.55 for northern Victoria.
Fonterra provided a low-ball $6.06/kg milk solids on June 1, 2020 and swiftly upped its price to $6.40/kg of milk solids within 48 hours of the 2020 deadline.
It was a sign of things to come.
This year’s opening prices have been a tale of bid and counterbid.
Last week, Bega took its second shot at securing more milk, lifting its initial June 1 offer to southern Victoria farmers from $6.80/kg of milk solids to $6.94/kg, while for northern Victoria and Riverina, Bega’s price has risen from $7.00/kg to $7.09/kg milk solids.
Bega’s southern Victorian price puts the company just ahead of its main rivals, Fonterra and Saputo, which are both offering $6.85/kg milk solids across the southern region — after initially putting lower prices on the table on June 1.
Bega beverage operations executive manager Mark McDonald said “the revised 2021-22 opening milk prices address our competitive position and allows our suppliers to plan for the season ahead and make the best decisions for their farming businesses including taking advantage of our growth and new milk incentives.”
The prices moves over the past fortnight are not just the domain of dairy’s big players.
Colac-based Bulla has lifted its price three times in the space of a few months.
Known for its popular ice cream range, Bulla was one of the first players to raise the farmgate during the 2020-21 season — placing pressure on the big three processors to follow suit.
It again was a trendsetter in April when it provided opening prices before the competition with a range of $6.40/kg-$6.90/kg milk solids.
At the time, Bulla chief executive Allan Hood said his company maintained its commitment to continuing a simple, flat pricing model, including the benefit of no stop charge, volume charge or milk collection fee.
“One of the reasons we go early on an opening price is people want it. Most importantly, we have listened to what farmers have said,” Mr Hood said.
Since the mid-April declaration, Bulla has raised its opening price range to $6.50/kg-$7.00/kg milk solids in May and now $6.70-$7.20/kg milk solids in recent weeks.
The price revisions keep coming.
Just this week, Burra confirmed it too had revised its farmgate figures, moving from $6.40-$6.80/kg milk solids to $6.60 to $7.00/kg milk solids.
United Dairyfarmers of Victoria president Paul Mumford said five years on from the 2016 clawback, it would have improved farmer-processor relations for the latter to open with stronger prices rather than revising their farmgate figures.
“Clearly, prices are strong and they’re the strongest they’ve been for sometime. That’s great for the industry but it doesn’t mean it makes up for several years of underwhelming prices,” Mr Mumford said.
“Updating prices or revising prices over the past few weeks, whatever you want to call it, doesn’t do much to help with the relationship between farmers and processors.
“Farmers will wonder: Why didn’t you (the processor) start with the price you’ve now got?
“The processors will say the market has changed from the original announcement but you do have to wonder how much change has taken place when there’s only a fortnight, or a week and a half, between one price announcement and another. The big difference is that one processor’s competitor has outbid them and they’ve gone back for another go (at the price).”
With moves by Burra and Fonterra to raise their farmgate offerings in the past seven days, expectations are heightened in the sector that the coming weeks will provide further moves from other players seeking a stronger market foothold.
But there’s also the view that this current flurry of activity will mean a dearth of step-ups during the 2021-22 financial year, reflecting the trend seen throughout the 2020-21 season.
South West Victorian farmer Bernie Free said while the bidding war was disappointing initially, its results have proved fruitful for farmers.
“Most farmers thought the code of conduct would mean processors would open with the best price possible on June 1 and then give 30 days clear air until the season opened in July,” Mr Free said.
“Re-reading the code, it does give the processors to make an initial offer on June 1 and then have this bidding war situation, which was disappointing to start off with because there was a feeling the code would create greater stability in the sector.
“Having said that, the upside has been is that it has made processors push a little bit further than they would have liked. Many farmers will have 30 cents extra (per kilo milk solids) in their pocket now, instead of waiting eight or nine months for a step up.”
The mandatory dairy code of conduct remains a work in progress and farmers will have the opportunity to reshape the industry guidelines as these new market trends become more apparent.
ACCC deputy chairman Mick Keogh has spent several months urging farmers to be vigilant about signing on the milk contract dotted line.
“The dairy code remains an ACCC priority this year and we’ll continue to be very active in enforcing it,” Mr Keogh said.
“As well as checking the compliance of milk supply agreements and dispute reports immediately after the June 1 publishing deadline, we’ll be conducting risk-based audits throughout the year, which includes randomly selected traders and those with a history of complaints made against them. These audits can occur at any time during the year.”
COMMENT: ALEX SINNOTT, THE WEEKLY TIMES DAIRY REPORTER
FEW dairy farmers are avid viewers of game shows — the 5.30pm timeslot just before the evening news bulletins inevitably clash with milking time.
But if effervescent television host Larry Emdur wanted to dust off The Price is Right microphone, he could easily get some material out of the Australian dairy industry.
The past few weeks of farmgate bids and counter-bids are reminiscent of the 1990s shout fest.
Instead of guessing the correct price of a Janome sewing machine or a Qantas holiday for two to Honolulu, the audience has been left shouting “HIGHER, HIGHER” as processors keep raising the stakes at the farmgate.
Industry viewers should have been prepared for the game show-style oddity of the past fortnight, given that this bidding war started in an unusual fashion seven weeks ago.
The Farmgate Price is Right was kick-started by Colac-based processor Bulla in mid-April when they opened early — very early — with a range of $6.40/kg-$6.90/kg milk solids.
Like a contestant on the television show, they’ve raised their bids twice.
Australia’s big three processors — Fonterra, Saputo and Bega — have also hit the game show buzzer as the countdown clock ticks down to July 1.
Fonterra was out of the starting gates in May with a weighted average farmgate milk price$6.55/kg milk solids. The current figure is $6.85/kg milk solids.
Saputo came out with a weighted average farmgate milk price of $6.65/kg milk solids and now that figure, like Fonterra, is $6.85/kg milk solids.
Bega split its offering geographically at the June 1 deadline with $6.80/kg in southern and $7.00 in northern Victoria.
They’ve upped the ante only last week to $6.94/kg in the south $7.09/kg in the north.
Fourteen days remain on the clock for the Farmgate Price is Right.
After several seasons of going home with the equivalent of a Parker pen set participation prize, farmers feel like they’ve earned their shot at the jackpot.
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