Attracting youth key to dairy's future

27 Dec, 2013 01:00 AM
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Harvey dairy producers Dale Hanks (left) and Stuart Maughan are cautiously optimistic about the future of dairy in WA.
There are opportunities to grow wealth within dairy, but the margin is just smaller than it used to
Harvey dairy producers Dale Hanks (left) and Stuart Maughan are cautiously optimistic about the future of dairy in WA.

DAIRY farming in WA is anything but child's play, but there are still opportunities that exist within the industry.

Having endured a decade characterised by challenge and change, Harvey producers Dale Hanks and Stuart Maughan remain cautiously optimistic about the future of dairy in WA.

With a dwindling milk supply, a desperate need for investment and declining farmer sentiment, questions continue to linger around the sustainability of dairy production in WA.

But with the emergence of new technology and innovation comes opportunity, and the passion still burns for dairy in the South West region.

p Opportunities

As the WA dairy sector continues to grapple with a negative industry image, former Western Dairy chairman Dale Hanks believes there is still potential to make decent returns in the industry.

"The positive aspect of dairy in WA is if you do things well, grow grass well, feed your cows well and understand your margins, you can make a good living," Mr Hanks said.

"If one of those things isn't working right, it won't work.

"There are quiet achievers who are making good money and growing their net worth fast by making the right decisions at the right time and by being good operators."

In an industry struggling to attract enthusiastic new entrants that will help steer the industry forward, Mr Hanks said there were good prospects for young people who were looking to pursue a career in dairy.

"There are opportunities to grow wealth within dairy, but the margin is just smaller than it used to be," he said.

"There is going to be more opportunities as we go forward because more innovative models will come out of the woodwork without involving so much capital up front.

"We will just end up doing business differently."

Mr Hanks said there was no reason why a young person couldn't enter the industry and grow a net worth of $50,000 to $100,000 a year by breeding cattle.

"There are opportunities if you approach the future with innovation," he said.

"As we get ageing farmers, those innovative ways will have to be the way for those farmers to exit out of dairy.

"It won't be farms for sale, it will be leasing, share farming or buying portions of farms."

Mr Maughan said a positive perception would encourage enthusiastic people back into the dairy industry.

"At the moment you would be hard pressed to find someone who would choose dairy as a career," Mr Maughan said.

"It has got a lot to offer, but it is challenging."

Another positive highlighted by Mr Hanks was the well-resourced industry body Dairy Australia, which provided extensive tools and information to producers.

"From an industry point of view I think we do pretty well it's just a matter of getting people engaged," Mr Hanks said.

"It doesn't matter what sector, getting people engaged with extension and research is always pretty hard.

"The take up of innovation is lagging but the information is there, but it's about the willingness to adapt and take up information to grab it and run with it."

Both farmers acknowledged the potential for export markets to deliver returns to WA producers.

"We are going to see the world double by 2050, Asia is there and they want good quality milk products," Mr Hanks said.

"We can probably tap into the small markets, and maybe into a seasonal market that the northern hemisphere can't fill.

"When we get a spring flush we can supply those markets the northern hemisphere can't."

p Challenges

For Stuart Maughan the key to ensuring a sustainable dairy industry in WA was a fair milk price.

He said prices were moving in the right direction following an increase in the farmgate price earlier this year, but producers required a sustained price increase of 2-2.5 per cent each year to remain viable.

"We are not sure if prices are going to continue to increase, but that is what has to happen," he said.

"We haven't seen strong competition among processors, they are not tied to price, they are tied to supply, so price goes as the market goes.

"The milk price is starting to increase, but it is not ramping up out of the marketplace."

"I am a bit annoyed we haven't had an all out price war between processors chasing milk supply," Mr Hanks said.

"They have run around and tied everyone up on long-term contracts to secure their milk supply and haven't let the market forces play out."

But Mr Hanks said processors margins were also being squeezed, and the cost of running a processing plant wasn't cheap.

"The cost of plastic has gone up, the cost of power has gone up, so their costs have continued to rise too," Mr Hanks said.

"As farmers, we need to focus more on margin than just price, too many farmers in this State focus on price alone, but if you ask them what margin they are making they can't tell you."

Both producers agreed there was very little investment at the on-farm level.

Mr Hanks said farms had to be strong and profitable to encourage people to reinvest in their bottom line.

"Our good operators might be making an eight per cent return, but they need to be making 20pc return," he said.

"Under my model here we are probably near capacity, but we are happy to run it as is, continue to make a good profit and not reinvest. "

Mr Maughan said until the industry saw sustained increases in farmgate price, the required investment would not come.

"We need that investment for the milk volumes to come," he said.

"There is still a lot of potential in the South West but there needs to be good profit driving what people are doing."

Mr Maughan said the average return on investment was discouraging.

"We can control what happens on farm, but we have been guilty of watching the tanker pick up the milk and not caring about what is done with it and I think that is something that has to change," he said.

"We need to take more notice of where the milk is going and whether it is creating value for the producers in the State or not."

Mr Hanks said there was no real estate market for dairy farms, so producers had to make money out of their farms while still working and that wasn't easy.

"Around here people have sold parts of their farm because there is a lifestyle market here that has kept prices higher than their productive value," Mr Hanks said.

"That has made it difficult for us to buy the farms next door because price doesn't reflect earning potential.

"People aren't buying dairy farms.

"We will see more innovative models surrounding how people do business.

"It just becomes hard for those who think they are done milking cows, who want to hang up the boots and sell the farm because it will be a long time waiting."

Mr Hanks said technology and innovation would remove the mundane aspects from dairy farming, but any new developments would require significant investment.

"You want long-term security and a future in what you are doing in order to invest," he said.

"The State is getting down to a critical mass of milk, and we are losing the intellectual property of people who know what they are doing."

Mr Maughan said some farmers had been hurt so badly in the last decade, they were starting to burn out.

"There are a lot of jaded dairy farmers and I am not sure what is going to push them through," he said.

"Their on-farm production has been dropping off too.

"And if you lose on-farm productivity, as soon as you take your eye off it it gets away from you."

With WA milk production reaching critical mass and a predicted summer milk shortage, both Mr Hanks and Mr Maughan said processors would be concerned about where they would source milk volume from.

"The processors haven't had a spring flush and that translates through summer, so they have to produce increased volume, and I'm certain they are worrying about it, and they'll have to pay more to get it," Mr Maughan said.

"They have to encourage us to pickup the grain feeding to get the milk production up in the short term so we can all see an increase in price, keep heifers and maybe push numbers up on farm."

Mr Maughan said the WA processing sector had capitalised on a lack of unity between producers during recent contract negotiations.

"Milk producers are their own worst enemy because we have never had any unity," he said.

"I really believe if we all banded together and came from the same place we would have much more power through collective bargaining."

Mr Maughan commended Brownes Dairy on its efforts in pushing up the farmgate price and said indications were that prices would continue to increase.

"If Brownes keep pushing up the farmgate price Harvey Fresh will follow suit because that's what they do," Mr Maughan said.

Having recently switched processors to Brownes from Harvey Fresh, Mr Maughan said he appreciated Brownes' marketing strategy which encouraged WA consumers to buy local.

"The strategy resonates with the public, if everyone else got on board with that message we would be better off," he said.

Mr Maughan said he was critical of Harvey Fresh because they discounted their milk.

"They always seem to have the cheapest milk in the shop," he said.

"How are they going to pass on increases to farmgate price when they are discounting the life out of their products."

Both farmers agreed the $1L milk campaign instigated by the major supermarkets had negative implications for the industry.

"The $1L campaign has had a demoralising effect on farmers," Mr Maughan said.

"It looks like there is a cap on the milk price.

"I know that wholesale price and retail are different thing but it sends the wrong signal to farmers and that hasn't helped.

"Every litre that is sold retail for a dollar or less is like a pin prick and eventually enough pin pricks will kill the industry."

Rising input costs were also cited as a significant concern for both farmers, including increased power, feed and water costs.

"Power effects everyone and it has gone through the roof, grain hurt everybody last year but it has come back this year," Mr Maughan said.

"We have more water allocation this year but we are going to pay more for that water going forward.

"As people stop irrigating, the price per megalitre will go up.

"Initially the biggest issue was the availability of water, now it is the price, so we need to get more bang for our buck with water.

"That means the whole pasture renovation renewal programs all cost more money.

"The days of producing cheap milk are long gone."

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READER COMMENTS

Bea Elliott
27/12/2013 12:00:19 PM, on Farm Weekly

There's nothing the human body needs that it can't get from plant based sources. Going to those sources directly, insures health, is less harmful to the environment and is certainly kinder to the cows and calves. Eat smarter, live healthier - Go Vegan.
Pete
28/12/2013 1:46:03 PM, on Farm Weekly

How can you attract a young person to an industry where you battle to cover costs maybe you just do it for fun and you have a job between milking that pays you a wage that way you can keep supplying milk to our dollar a litre supermarkets. Way to go guys, form a union, cut off milk supply for 1 week and watch the milk price rise.

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