Flattening the milk production curve: What’s the cost to dairy farmers?
Dairy processors have pushed farmers to flatten their milk production curve. But it’s farmers wearing the greater costs and risks.
Processors have adopted a milk pricing structure that encourages farmers to flatten the milk production curve, but at what cost?
It’s a question many dairy farmers are asking as they add up their fodder bills on the back of an 18-month drought in Victoria’s south west that forced many to raise their borrowings, diluting equity.
Dairy analyst David Beca said that by encouraging milk production outside the spring peak, processors were “pushing” farmers to adopt high-cost, high-risk farming systems.
Mr Beca said there was competitive tension between dairy farmers, who wanted to tap into the cheapest resource they had at hand – grass – and processors who wanted a flat milk production to maximise plant efficiency and supply a retail market that absorbs about two-thirds of Australia’s milk.
He said a major study into the costs of proposal to flatten the milk supply in Ireland found that for every Euro a processor gained in plant and worker efficiency, it would have cost farmers about three Euros.
“It’s why Ireland and New Zealand have continued to encourage their farmers to maintain low-cost production,” Mr Beca said, which he said also lowered risks when seasonal conditions deteriorated.
He said in Australia processors had “pushed” farmers into higher cost, flatter milk production, but then left themselves exposed to competition from imports that tapped into lower cost overseas processing and farming systems.
While a third of Australian milk is used in short shelf-life foods, Mr Beca said two-thirds went into exports or local products that were fully exposed to import competition.
“Processors now can’t pay farmers what they need,” he said. “The flattening out of milk supply has resulted in both parties – processors and farmers – struggling.”
Mr Beca said one of the only region’s to see real growth was Tasmania, where pasture made up a much higher percentage of cows’ diets.
“One option is to try and reverse it (high-cost production),” he said. “It’s a huge deal, but we need to do it.”
United Dairyfarmers of Victoria president Bernie Free said “if you’re trying to produce milk out of season, you’re obviously going to have higher costs”, from cutting and carrying your own fodder to having to buy in more fibre and grain.
He said the past 18 months had shown just how much risk farmers faced in a high-cost system in the wake of a failed spring and autumn break, when many had to dip into their reserves to maintain production.
Australian Dairy Farmers president Ben Bennett said “there were guys who were spending $20,000 a week on hay”.
Mr Bennett said the move to higher production cows, also meant they needed higher quality feed.
“If you don’t, they will pull off weight on their backs and won’t get back into calf,” he said.
Mr Bennett said processors weren’t the only ones to blame for the shift to higher risk, higher production dairying, as “everyone’s eyes are bigger than their bellies”.
