Sue Neales
MAY 27, 2016
THE AUSTRALIAN
Children of dairy farmers join a protest in Melbourne this week over milk producers’ retrospective price drop. Picture: Sue Neales
Cyril Freemantle has been a dairy farmer for 60 years on his small Victorian property north of Bendigo and thinks he understands his business pretty well.
But even he is perplexed about who or what is to blame for the sudden farmgate milk price crisis that has sent hundreds of farmers to the brink, triggered a financial and mental health tsunami in the two main dairy states of Tasmania and Victoria and forced desperate farmers to take their plight to the city streets.
Marching among 500 protesting dairy farmers in Melbourne this week while surrounded by placards calling for the milking of cows, not farmers, Freemantle, 74, admits to disillusionment and confusion at the unexpected and retrospective price drop imposed this month on 75 per cent of Victorian dairy farmers.
Four weeks ago, Australia’s biggest milk processor, Murray Goulburn, slashed its farmgate milk price from $5.60 a kilogram of milk solids (about 42 cents a litre of milk) to between $4.75 to $5.00 a kilo for the entire 2015-16 financial year, backdated to last July.
A week later, main rival Fonterra followed suit, dropping prices to $1.91 a kilo (14 cents a litre) for the next two months, far below the cost of production, and landing its 1100 milk farmers with “clawback” debts, averaging $128,000 each.
With warning of even lower milk prices next year, it was immediately predicted one-fifth of the nation’s 6000 dairy farmers — especially the youngest and brightest — would go broke.
Such fears are already coming true. Abattoirs in Victoria and Tasmania have a four to six week queue of cows awaiting slaughter, dispatched by farmers either quitting in despair or so desperate for cash they are sacrificing their precious milking cows for mincemeat.
Farmers facing no income until July — and very little after that — are inundating welfare offices and Centrelink with applications for emergency food payments, while financial and mental health counsellors and Lifeline are helping them in their darkest hours.
Freemantle, whose son now runs the family’s 250-cow herd, says it doesn’t pay to run dairy cows or produce milk at below $5 a kilogram, even on the irrigated pastures of such an ideal dairying region as the Waranga channels of the lower Loddon Valley.
“It’s the worst situation — tighter than I’ve ever seen it before — since I started farming when I was 16,” admits Freemantle, whose farm has always supplied milk to the homegrown Murray Goulburn co-operative. “We thought Murray Goulburn would be sticking with paying us $5.60 a kilo for the whole season. We even hoped for a step up to $6 a kilo early on as (former chief executive) Gary Helou said was possible. And as we got near the end of April we thought we’d made it through.
“But then the rug was pulled out from under us; people are now landed with these new debts … and everyone is sliding backwards.”
Like most of the population — and fellow farmers — Freemantle has heard myriad possible causes for the worst crisis facing Australia’s dairy farmers and $13 billion dairy industry this century.
He attributes it partly to mismanagement and hubris by Murray Goulburn, and its aggressive, now-departed, chief Helou.
With half of Victoria’s massive milk production of 6400 million litres of milk surplus to domestic requirements and exported, farmers like Freemantle also acknowledge a price fall — although not inevitably such a savage crash — was likely given a long slide in global dairy commodity prices.
Issues such as the Malaysia Airlines flight MH17 crash in the Ukraine, which caused Russia to block imports of European dairy products creating a cheese glut and milk lake that spilled over and spoilt Australia’s traditional Asian export markets, are too far from the placid paddocks of Calivil where the Freemantle family has farmed for generations.
But the well-spoken grey-haired farmer particularly loathes the milk discounting war between Coles and Woolies that led to supermarket private label milk sold for $1 a litre five years ago.
Dairy leaders point out fresh milk is now cheaper than bottled water. And 30 years ago consumers were quite happy paying $1.40 a litre — the going price then — for local milk. “I find it hard to understand myself; it’s all tangled up together, but the bottom line is that the big supermarkets rule it all and they are pushing the prices farmers are paid down, while consumers are getting a free ride,” Freemantle says. “I do blame Murray Goulburn too for agreeing to supply $1 milk to Coles; but milk is a fresh product that can’t be stored so even if you are the biggest processor you can’t hold out for long against the two biggest supermarkets to try and get a better price.”
Near neighbour and fellow protest marcher Peter Sexton, who runs 350 dairy cows on his Dingee dairy farm is less forgiving of the actions of the massive dairy co-operative he supplies with milk and owns shares in. “We’ve been let down by our (Murray Goulburn) board, they should have been looking after the interests of farmer-suppliers and asking the hard questions of Gary Helou; not letting him run off on his own tack with a lot of bulldust,” an angry Sexton says.
“I was being paid 50 cents a litre for my milk and then they dropped it to 38 cents a litre retrospectively; that’s $50,000 I won’t be getting over the next two months that I was expecting, and $120,000 to pay back over the next three; it’s going to be a struggle to keep going.”
Southern NSW dairy farmer and the chairman of Bega Cheese Barry Irvin believes Sexton and every one of Murray Goulburn’s 2600 farmer-milk suppliers has an absolute right to be furious.
He finds the principle of Murray Goulburn dropping milk prices so late in the season, backdated to last July morally reprehensible.
Only once before — during the nadir of the Global Financial Crisis in early 2009 — have average farmgate milk prices paid to farmers been cut back midway during the 12-month season.
Typically the July year opening price set by major processors such as benchmark Murray Goulburn is conservative, with progressive price “step-ups” later year resulting in extra payments to farmers for all their milk, including that already dispatched.
But last July, the opening price for 2015-16 was set high at $5.60 a kilogram of milk solids by Murray Goulburn and most major competitors like Bega and Fonterra, with the dangle of $6 a kilogram higher price likely to follow.
That didn’t materialise. Instead MG dropped the disastrous $4.75 a kilo price bombshell a month ago, with the processor then demanding to “claw back” the $200 million of milk “overpayments” it had made to farmers for milk delivered in the previous 10 months.
With much of that income received and already spent by farmers, mainly on feeding milking cows during a bad drought, the average $128,000 “overpayment” clawback had devastating consequences. Irvin is livid that Murray Goulburn intends to declare a corporate profit of $40 million and pay dividends to its investors following last year’s partial float, while clawing back $200m from farmers. The lateness of MG’s price drop, and the continued claims by Helou right up to a week before he resigned that $6 a kilogram milk price was still possible, are the final straw for Irvin. “The company is not wearing the pain and is now muddying the waters about what has caused it all,” he says.
“It’s unfair. It’s protecting shareholders and giving the pain to farmers when the core issue should be what has occurred within Murray Goulburn and its management, why it made a series of decisions, including supplying Coles, that resulted them having to cut their farmgate milk so savagely, and how to stop it happening again.”
Fortunately, a few bright spots in otherwise dire times have emerged. Several of the large dairy companies including foreign-owned Warrnambool Cheese and Butter company, Bega Cheese, Burra Foods and Parmalat have managed to hold their milk prices against tide at $5.60 a kilogram for the rest of the year.
And the banks, led by major dairy industry lender ANZ, have no intention of marching up the drive of farmers suddenly weighed down with new clawback debts and foreclosing on their farms.
Instead, most offer a three-month freeze on loan and overdraft repayments, until prospects for the dairy sector become clearer, when new season milk prices are announced by the processors in mid- June.
The wave of support by city consumers has overwhelmed many farmers doing it tough, with shoppers rushing to buy more expensive branded milk rather than the $1 supermarket milk that many blame for holding milk prices low.
But with two thirds of Australia’s dairy industry concentrated in Victoria, where 6.4 billion litres of Australia’s 9.7 billion litre milk pool is produced by its 4300 dairy farmers, the reality is that cheap supermarket drinking milk accounts for less than just 3 per cent of Victoria’s milk production.
Farmers are not paid according to the ultimate use of their milk. All milk is regarded as the same by major processors and farmers simply get paid — and must accept the designated price.
With so much milk excess to domestic consumption produced in Victoria and Tasmania, about half of Victoria’s excess milk is exported as cheese, butter, yoghurts, infant formula, long-life milk and milk powders. It accounts for 85 per cent of Australia’s $3 billion dairy export trade.
With such a reliance on exports, which remain at record low prices, dairy farmers wait with apprehension for even worse to come as the new financial year approaches. A much-lower opening milk price for the 2016-17 season from top processing companies — some fear it will be below $4.50 a kilogram — will test farmers who say they can’t cut costs further.
“It’s got to be over $5 a kilogram to cover costs,” Sexton says. “We are good operators but a low price for the whole year, anything like $4.50 a kilogram, would make us wonder what we are doing, working hard seven days a week to lose money on every cow and litre; the whole industry here would just disintegrate.”
WHAT CAN BE DONE TO HELP?
Boycotting Murray Goulburn’s Devondale milk, buying only raw milk or eating more cheese will not solve the crisis. So what will help dairy farmers?
Boycott $1 a litre supermarket milk?
Good idea long term. Boycotting cheap Coles and Woolies milk and buying more expensive brands won’t put extra money into farmers’ pockets now. In the short term, they get paid the same price regardless. But it sends a signal to supermarkets that cheap milk may harm any image of them as the “farmers’ friend”. Also, rows of $1 a litre milk sitting in supermarket milk fridges is a great morale booster for farmers.
Buy only non-private label dairy brands?
Even better. More local sales of branded Australian milk, cheese, cream, yoghurt and ice cream returns a higher margin of profit to major processors such as MG, Fonterra, Lion, Parmalat, Bega and Bulla. Across time, this should ameliorate the impact of low global prices. But it depends on the processors passing on better domestic sale revenues to farmers. Supporting farmer co-ops is another good strategy.
Avoid Fonterra and Murray Goulburn brands?
No. With the two biggest processors creating the crisis by crashing farmgate prices retrospectively, it is tempting to avoid MG’s Devondale and Fonterra’s Western Star and Mainland. But fewer sales only hurts farmers, pushing more farmers’ milk on to lower-priced export markets at a time of glut.
Drink more lattes and eat more brie?
Maybe. Every little bit helps. But make sure it is Australian brie, and insist on your favourite barista using only branded milk.
Back a 50c emergency levy?
Appealing idea. Especially if it was added to the Coles and Woolies $1 a litre milk price. But it is difficult to administer, and would all farmers get it or just the ones in Victoria and Tasmania hurt by the crisis? Would farmers receive a higher price a litre or a cash subsidy? With Australians drinking 105 litres of milk a year, it would add $50 to everyone’s annual shopping bill.
Cheap government loans?
Good idea. A farmer who takes out a $100,000 loan to “pay back” his dairy company for too high milk prices paid during the past 10 months is better off using a low 2.66 per cent government interest rate, which requires interest-only payments for five years, rather than a 6 per cent bank interest-and-principal loan. But young farmers leasing land and with no equity will find it hard.
Bring back free milk in schools?
Every little bit helps. Senator John Madigan wants the federal government to fund a return to the mandatory free school milk program. He says it would mean less Australian milk was exported at lower values, boosting average farm returns, and be more useful to dairy farmers than cheap loans.
A free meal for farmers?
Fantastic. A practical suggestion for help from Rachel Young, publican of the Terminus Hotel in Yarrawonga, Victoria. Shocked by local tales of farmer suicides and desperation, she has offered any dairy farmer and their family a free meal at her hotel.
STATE OF THE DAIRY INDUSTRY
6100Number of farmers
39,000Dairy industry workers
1.74 millionNumber of dairy cows
$13 billion The value of farm, processing and export industry
Victoria66 per cent of dairy industry
NSW 12 per cent of dairy industry
Tasmania10 per cent of dairy industry
2600farmers supply Murray Goulburn (mainly Vic, Tas, south NSW)
1100farmers supply Fonterra (mainly Vic, Tas)
25% total milk production used for drinking milk
35% total milk production used for cheese
34% total milk production exported
$3 billion Export value a year
105 litres Local fresh milk consumption per capita each year
180 millionlitres a year of Coles private brand sold (3% Victorian milk pool) at $1 a litre
$2.16 average price of branded milk per litre
$1.02 price of discounted supermarket milk per litre
$1.75 price of litre of milk in New Zealand
$1.75 price of a litre of milk in US
$1.82 price of a litre of milk in Britain
$2.56 price of a litre of milk in Japan
Subscribe to our free mailing list and always be the first to receive the latest news and updates.