Milk price ‘disconnect’ blamed for processors’ pain

At least a dozen dairy processors have gone under, been sold or faced crippling losses during the past 18 months as costs bite and imports surged.

Gundowring Ice Cream is one of the many dairy processors that have been forced to close, as costs soar and imports surge by 27 per cent.

At least a dozen dairy processors have gone under, been sold or faced crippling losses over the past 18 months, as costs soar and their brands are shoved off supermarket shelves by cheap imports.

Processors large and small point to the growing disconnect between the $9.40 a kilogram of milk solids they pay Australian farmers for milk, while the New Zealand farmgate price is $7.14/kgMS and Global Dairy Auction conversion price sits at $7.36/kgMS.

The value of dairy imports surged 16 per cent in the past 12 months, equating to about 2.2 billion litres of milk that was shipped into Australia as cheap US and New Zealand cheese, along with mountains of butter and milk powders from Europe.

Australian Dairy Products Federation chief executive Janine Waller said “supermarkets, cafes and consumers are filling their fridges with imported dairy products because it’s cheaper to produce and cheaper to buy.

“Australian dairy processors are reassessing their footprints as they contend with record low raw milk production, persistent and rising input and overhead costs, and growing compliance constraints.”

Small processors – Gundowring Ice Cream, Tamworth’s Peel Valley Milk and Made by Cow – have been hardest hit, closing down their operations due to soaring costs.

Dairy processors sold, rationalised or battling.

Larger players, such as Bega, face fierce import competition and shrinking export returns.

Bega’s most recent half-year results presentation shows its bulk commodity sales revenue fell by $55.1 million, which it attributed to the “farm gate milk price disconnect to global dairy commodity prices”.

But Australian Dairy Farmers president Ben Bennett dismissed ADPF’s argument saying the farmgate milk price was simply based on the laws of supply and demand and was “about as disconnected as day follows night”.

“Instead of punching down, how about they (processors) punch up.”

Australian Dairy Farmers president Ben Bennett says processors should be punching up for higher returns from supermarkets.

Asked about what was driving processors to close plants, Mr Bennett said “ask the supermarkets – they have all the power”.

Supermarkets are increasingly tapping into cheap cheese and butter imports in the midst of the current cost of living crisis, with Dairy Australia’s latest analysis showing the value of cheese imports surged by $156 million over 2023 to reach $1 billion.

Consumer loyalty to Australian brands is being sorely tested, given New Zealand cheese is being sold on supermarket shelves at half the price of Australian cheese.

As of this week Woolworths was selling NZ tasty cheese under its Hillview house brand for $9.90/kg, next to 500g blocks of Bega tasty cheese for $10.50 – the equivalent of $21/kg.

Local ice-cream manufacturers have also been hit hard, with the value of imports hitting supermarket freezers jumping 27 per cent in the year to December, from $135m to $185m.

Iconic Australian ice-cream and dessert maker Sara Lee went into voluntary administration in October last year, due to rising costs and falling sales, before finally being bought out by former Darell Lea owners Klark and Brooke Quinn.

Ms Waller said 10 dairy processing businesses had publicly announced a closure during the past 18 months.

“This is in addition to several other dairy processing factories suspending operations, and others announcing significant impairments on their dairy asset value, writing down hundreds of millions of dollars over the last two years,” she said.

Bega, which bought out TasFoods Betta and Pyenga Milk brands last December, closed the company’s Burnie plant with the loss of about 50 jobs.

In February this year Western Australia the Margaret River Dairy Company was rescued from closure by the local Cheeky Cow dairy consortium.

Australian Dairy Nutritionals has shut down its Camperdown Dairy fresh milk production, while others such as Noumi are battling to survive.

ADPF reports that in 2021-22 labour costs increased by about 10 per cent, transport costs up 10 per cent and gas and electricity prices surged by about 300 and 100 per cent respectively. In FY2022-23 Ms Waller said processors saw further rises in labour costs of about five per cent, transport was up another 19 per cent and gas and electricity costs grew by a further 82 and 25 per cent.