New milk incentive is good, but late

27 Jun, 2014 02:00 AM
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I don't think they will make structural changes for the base price offered, they will take the money

FARMERS have welcomed new milk incentive payments offered by Harvey Fresh to its supply base, but have warned a base price rise would be more beneficial and the changes come to late to be adopted by most dairies.

The company's new contract offers come as Harvey Fresh looks to secure its share of the WA milk supply in an environment characterised by falling production levels, rising consumer demand and fierce competition among processors.

In addition to an average two cent a litre price rise across the board for a three year contract, Harvey Fresh recently revealed it will offer a new milk incentive aimed at growing summer milk production.

The incentive will reward farmers with a bonus above the scheduled price for every additional litre of milk produced in the January to May period.

Based on growth from 2014 figures, the company will offer an extra 30c a litre in 2015, 25c/L in 2016 and 20c/L in 2017 for new milk produced during that period.

Previously, growth litres from one year were counted as base litres the following year, but the new contract enables the volume growth for the three years to be measured against the 2014 volume base, providing greater returns over the life of the contract.

WAFarmers dairy section president Phil Depiazzi said the 30cL growth milk incentive was a genuine attempt by Harvey Fresh (which was recently acquired by international dairy giant Parmalat) to encourage farmers to maximise their production through the January to May period.

But Mr Depiazzi said the announcement came too late for growers looking to take advantage of 30cL payment for new milk in 2015.

"The announcement is a bit late for 2015 as most cows are already mated," Mr Depiazzi said.

"I guess it will see farmers do what they can to produce as much as they can through that period, but it will be an incremental growth nothing substantial.

"It is just that lag time that is their problem.

"At the end of the day farmers have got to produce milk in the most efficient manner on their farm and make sure they do it to maximise their margin.

"And that 30cL growth may not suit all people."

Mr Depiazzi said the growth payments were only a short term solution, and while the offer looked attractive, farmers would have to sit down and crunch the numbers to see if it was worth them chasing new milk growth.

And although the contracts were a step in the right direction and price offers were always welcomed by farmers, Mr Depiazzi said most producers would have preferred to see the money spent on increasing the base price rather than the growth incentive.

"If that base price is set at a sustainable level then farmers will invest in their businesses," he said.

"I understand the company offering the growth price because it only targets the milk they will receive, it is smart business, but from a long-term production point of view the money needs to be spent on the base price.

"Ensuring that base is at a sustainable level is where they will get more bang for their buck and result in an industry that is sustainable."

Mr Depiazzi said the contracts showed Parmalat's genuine desire to ensure it had offered a contract that was transparent, fair and equal to all suppliers.

Rural consulting agricultural consultant Steve Hossen did not believe farmers would make the structural changes that were needed to grow production.

"Come summer and in the lead up to summer, when there are decisions around whether to feed cows a bit more or give them the same amount, farmers will make decisions about feeding extra fodder if they can get beyond last years level for that month," Mr Hossen said.

"That is more tactical then structural.

"I don't think they will make structural changes for the base price offered, they will take the money and move on."

Mr Hossen said WA was still well below the commodity price in Victoria and New Zealand, and the Harvey Fresh offer was just another step in the slow rise in prices.

"If you look at it in terms of the average income for a farm, the average income for a farm last year was $1.3 million, this year will be $1.38 million, it is up but it is not going to lead to a major structural change," he said.

Mr Hossen said it was important that farmers only chased the milk growth incentive if it fitted with their business.

"But don't change your system to chase it, you'll just add other costs," he said.

"Certainly if you're rolling into summer and you can feed them a bit more because you have underfed them and they exceed last year's level because you feed them more it is very cost effective.

"But don't make a big structural change."

Yarloop farmer Tony Ferraro said producers would have preferred to see a 5cL base price increase by July 1 this year rather than the generous incentive to grow new milk.

"The 2cL offered is behind break even," Mr Ferraro said.

"Discounted milk campaigns have been going on for four years now.

"In that time our shire rates, insurance, fuel, have all gone up.

"Everything you can think of has gone up over the past four years, we have lost ground.

"2cL is not going to make that up."

Mr Ferraro questioned how producers would increase production in time to see the 30cL growth incentive next year. "They (Harvey Fresh) claim they are trying to arrest the export of heifers," he said.

"The heifer that is not leaving now is 6-months-old, so we keep the export heifer.

"It is going to take another 12 months before they are old enough to mate if you do a good job.

"It then takes another 9 months for her to calf.

"The 30cL is gone on the new heifer, the heifer will be ready to mate at 25cL, she has calved at 20cL.

"So really the first chance at seeing that extra milk is at 20cL.

"That 30cL is only going to happen for a small minority."

Mr Ferraro questioned how those farmers looking to purchase cows to grow milk production would pay for them.

"The money has to come from somewhere and when you buy the cows, who is going to feed them?" he said.

"If you've got the money to feed them who is going to milk them?

"I've crunched the numbers based on our volume, which is 2.5 million litres a year.

"If you are going to increase production by 10pc, you have to go up 700L a day.

"You multiply that by 30cL it becomes $210 each day.

"It is only for 150 days between January and May, so it is $30,000

"If you have to go and buy cows at $2000 each you have blown you $30,000.

"Then you have to milk them, cart them and pay interest."

Mr Ferraro said the contracts only affected Harvey Fresh suppliers, who made up a third of the State's farmers.

"So only a third of the State's suppliers qualify and out of that third, only a few will benefit," he said.

"It is only for a small percentage of people not the whole industry.

"But the whole industry needs a price increase."

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