Time for a different dairy approach

27 Dec, 2013 01:00 AM
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Scott River producers Ross Woodhouse (left) and Brad Boley are uncertain about the future of dairy in the region.
Scott River producers were caught up in it and hasn't been corrected by Brownes...
Scott River producers Ross Woodhouse (left) and Brad Boley are uncertain about the future of dairy in the region.

MILK production in Scott River has reached crisis point.

The home to efficient large scale farmers producing for the summer milk market, the area is prime milk producing country but producers Ross Woodhouse and Brad Boley see a precarious future for the area.

Established almost 20 years ago, their once profitable large-scale operations are now feeling the wrath of climbing input costs and low farmgate milk prices.

With almost 100 per cent of Scott River officially on the market or unofficially for sale at the right price, including Lactanz dairy the largest single milk producer in WA, producers are questioning the future of the area as dairy country.

Both Mr Woodhouse and Mr Boley have placed their properties on the market which they hope to sell as part of a package with a fellow Busselton producer.

The three producers hope bundling their properties together will attract international buyers, despite their preference for local investors.

The 4000 hectare package would also include about 1500ha of leased land, a water allocation of 5.5 gigalitres and a 7000 cow dairy herd plus heifers to produce a total milk production of 32 million litres, comprising a significant portion of the WA milk supply.

Mr Woodhouse had expressed interest to invest in a robotic dairy model earlier this year, and is still passionate about dairy farming saying he would reinvest in WA dairy if given the opportunity to do so.

Despite the challenges facing the industry, the pair say they are passionate about dairy farming and would be keen to remain in the industry in some form in the future.

p Challenges

Former Australian Farmer of the Year and Nuffield Scholar Ross Woodhouse and fellow producer Brad Boley believe dairy farming at Scott River is at a crossroad.

"It is quite sad because I think there is enormous potential here in the Scott River given access to the right marketplace," Mr Woodhouse said.

According to both producers a 20 per cent cut in the summer milk price in 2008 had hit their businesses hard.

"Even in a farming career of 25 years that is the biggest price drop I have ever endured," Mr Woodhouse said.

"That is so significant for Scott River because they are the months we produce the most milk."

Both Mr Woodhouse and Mr Boley said the immediate fall in price made irrigation dairy farming immediately unviable.

"Traditionally in WA you have to pay higher prices for summer milk to encourage people to invest into irrigation to feed the cows in that period," Mr Woodhouse said.

"The price difference between the irrigated months and the non-irrigated months is only two cents and back in better days it was between 8-12c."

Mr Boley said the cut to prices was a strategic move by Fonterra, the former owner of Brownes Dairy.

"Scott River producers were caught up in it and hasn't been corrected by Brownes since," he said.

Both producers were tied to five-year contracts with Brownes, and were only two years into their existing contracts.

But according to Mr Woodhouse Brownes did little to address the issues when it took the contracts over.

"At the time when we signed the contracts they were offering a bit of a premium, and we were all struggling," Mr Boley said.

"We were drowning men looking for a life raft but we got given a life raft with a hole in it.

"There were a couple of cents and that helped us but the way things are going it is nowhere near enough.

"We run efficient businesses and through no fault of ours we find ourselves no longer profitable."

Mr Boley said there was not one input cost that hadn't doubled since 2002, whether it was labour, fertiliser or power.

"Very few businesses could endure that sort of a hit and still survive," he said.

"We have probably hung out for too long anyway because we thought they would change the pricing around but that hasn't happened.

"They have waited until we have gone to our knees and there is no option.

"We have all thought they would wake up eventually, and they will have to start paying for summer milk, but they haven't."

With almost all of the Scott River region now for sale, both farmers were concerned about the implications for their equity.

"We don't know yet but if Lactanz sells for less than market value, it will drive the value of land down," Mr Boley said.

"It's a bit hard to tell the banks our land is worth $6000 per acre when Lactanz is trying to sell for $2000."

Mr Woodhouse said another challenge for the WA dairy industry was it had spent 20 years fighting over a domestic market, and the supermarket duopoly Coles and Woolworths had 'bastardised' milk as a product.

"The Coles and Woolies campaign has taken 20pc off the milk price," Mr Woodhouse said.

"They have just driven the price down.

"We don't have any options because we are at the mercy of the supermarkets."

Mr Woodhouse said imported dairy products from the Eastern States to counter milk shortages had been damaging to supply and demand mechanisms in WA.

"I understand that National Foods bring in five million litres of milk every summer, so there is already an identifiable shortage," he said.

"They are happy to lose money bringing the milk over rather than pay local farmers.

"If the consumer woke up to milk being shipped across the Nullarbor and didn't buy it, that would really bring the issue to a head."

Mr Woodhouse said a lack of young people in the industry was also a significant concern for the industry.

"Where are we going to attract young people, it is not a good living, the capital investment is huge, we want farmers that can help take the industry forward," he said.

Mr Boley said there was a lack of investment into the industry, but any producer who had invested in industry in the past five years and had been progressive was struggling.

"The farmer that has been there for 30 years, hasn't invested and has no debt might be making a dollar out of it, but anyone who has invested to progress is going backwards," he said.

"There are very few farmers in WA that are growing production.

"They might be changing their milking system or investing a little bit of capital there, but there are no large scale developments, the last greenfield site was really Lactanz and that was foreign investment.

"There is about 150 dairy farmers and a dairy lasts a maximum of 30 years, so there should be at least five dairies built a year to keep them upgraded – there is lucky to be one."

p Opportunities

Both producers were passionate about lifting the domestic market by establishing an export market for WA milk.

"Harvey Fresh are starting to make some good inroads with their exporting," Mr Woodhouse said.

"New Zealand is currently enjoying 70c/L on farm and are totally focused on export, whereas WA has always been focused on the domestic market.

"If you look at Australia as a whole, we were producing 10 billion litres as a nation 10 years ago, we are now producing 9bL.

"New Zealand is producing an additional 10bL."

Mr Woodhouse said dairy had the potential to be a significant industry for the WA economy.

"If you sold another 10bL overseas for $2/L there is $20 billion," he said.

"There are some real opportunities, it is going to be up to our companies to get us there, that could be the thing to save the industry.

"Parmalat are the second biggest dairy company in the world, they are circling WA and you'd have to ask why.

"This is a small plant in the whole scheme of things, but they can see the opportunity in Asia.

"The guys that are going to invest in Warrnambool Cheese & Butter, they can see the opportunity in export and they are paying a ridiculous price for an opportunity.

"It's not about the actual running price of the business today, it is about opportunity."

Mr Boley said Asia would continue to increase as a potential market for WA dairy exports, and high value niche markets would emerge as significant opportunities.

"Export is where the growth is but we are bogged down in the highly competitive domestic markets and everyone scrambles for that, but what they have done is compete against each other for high value and the supermarkets have won," Mr Boley said.

Mr Woodhouse and Mr Boley commended Harvey Fresh for its proactive approach to establishing export markets.

"If you could deny the supermarkets product and find a high value export market, the focus would come back on the shortage here," Mr Woodhouse said.

"If Harvey can get enough money out of the State when the Coles' contract comes up next time, they will say they don't have enough milk to fill it at that price, they will say you need to pay another 10c a litre to get it back.

"It shouldn't be processors falling over themselves to get a contract to survive."

p The need for change.

Both Mr Woodhouse and Mr Boley questioned why government had not invested more money into agriculture.

"We can build billion dollar stadiums in Perth, but if you put a billion dollars into agriculture the multiplied effect would be five stadiums," Mr Woodhouse said.

"We should be reinvesting mineral wealth into primary industries for the future but it is being squandered on stadiums and foreshores and we will be like the Romans, we will have a beautiful city but we will all be bankrupt.

"The government doesn't have to help us, but they also don't have to hinder us, the monopoly they have let the supermarkets have has raped our price and they have just got too much control," Mr Boley said.

Both producers said the government was asleep and couldn't see the opportunities in WA dairy.

"My view is that the government needs to step in and back processing, I think you could keep the same management people in place, once you lose that processing then I don't believe we have a leg to stand on," Mr Woodhouse said.

"What you need to do is focus on the processing, how can we do things more efficiently here."

Mr Woodhouse said government should own WA processing facilities and then levy farmers on a contract basis to repay for eventual ownership.

"In the past I haven't been for government involvement," Mr Woodhouse said.

"Now is the time for them to step up, because we have the markets there.

"Everyone in the world is crying out for dairy and they will continue to in coming years."

Mr Woodhouse said he had encouraged foreign investment in the past but if processing was lost to overseas investment it would be the death knock for the industry.

"I can tell you now Harvey Fresh will be more sympathetic to their suppliers than Parmalat will be," Mr Woodhouse said.

"Government-owned enterprises are run efficiently so every last dollar is squeezed out.

"We don't look long term here in Australia, whereas the Chinese are thinking about what will happen in three generations.

"You never lose direction of where you want to be, if there is a market you pursue it – not say it is too hard."

p Next week Farm Weekly will continue this series with an interview with two Harvey dairy farmers.

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READER COMMENTS

Pete
28/12/2013 1:40:58 PM, on Farm Weekly

I find it funny when these guys say they have to invest in the industry to stay viable. this usually means the banks' money to get bigger to chase a carrot on a string. Something is really wrong if you have to keep getting bigger to stay viable maybe there is a huge elephant in the room these guys aren't seeing.

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