Dairies offered short cut-price deals

30 Nov, 2016 10:10 AM
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This dairy herd was sold after Harvey farmer Graham Manning was forced out of the industry in October. Harvey Fresh has offered short-term contracts to five of its uncontracted suppliers to give them an option to avoid selling their herds in January.
This dairy herd was sold after Harvey farmer Graham Manning was forced out of the industry in October. Harvey Fresh has offered short-term contracts to five of its uncontracted suppliers to give them an option to avoid selling their herds in January.

FIVE dairy farmers who supply Harvey Fresh but were due to be dropped next month have been offered new contracts through to June 2017.

Harvey Fresh farm liaison manager Ken Sharpe, who in July told four of the five - one was away on holiday - their milk would not be collected from January, confirmed on Monday new contracts were offered on November 23.

Mr Sharpe said the contracts gave the farmers four cents a litre less than the farmgate price paid under Harvey Fresh's standard contract.

"They would be getting 2c/litre less than they've been used to," he said.

"In reality they would be getting in the high 40s to 50c/l for their milk.

"The 3-4c/l lower price offered reflects the competition, we need to be competitive in the current market."

Harvey Fresh, owned by multi-national food company Parmalat, pays contracted suppliers a base price of 52c/l before quality, proximity and other bonuses and volume growth incentives.

The contracts offered to the five do not include growth incentives, but do not limit milk volumes to be collected, Mr Sharpe said.

While the contracts were for six months until June, the intention is to review them about March and possibly offer one or more extensions.

"It is likely they would be updated in March once we have a better idea of our supply situation over the summer months," Mr Sharpe said.

"Given the volatility in the industry we didn't feel we could offer a longer period first up."

The possibility of longer-term contracts being eventually offered "largely depends on whether the export market picks up".

Harvey Fresh earlier this year temporarily shelved major export expansion plans for ESL (extended shelf life) fresh milk and UHT (ultra high temperature) long-life milk when un-named target markets were flooded with price-dumped European dairy product.

"Despite what some farmers might think, what happens with pricing overseas does have an impact on how much they get paid, on us as processors and on the consumer," Mr Sharpe said.

He said the global and local glut of milk and dairy products "has put the shakes through everyone's pockets".

Mr Sharpe said Parmalat continued to truck bulk fresh milk from its Harvey factory 4200 kilometres to a bottling plant in Darwin - believed to be the longest milk delivery run in the world - as a long-term strategy to soak up surplus WA milk.

Sixty of Harvey Fresh's contracted suppliers are on three-year contracts due to expire in October and another four are on five-year contracts through to 2019 to enable them to obtain bank loans for substantial farm infrastructure upgrades.

They signed after Parmalat contracts were offered in October 2014 as a replacement for existing Harvey Fresh contracts.

The five who have the option of signing new contracts or not being picked up from January, had declined to sign the Parmalat contracts.

Mr Sharpe said there was a possibility only three of the five might accept the new contracts.

He said one farmer was considering retiring and selling most of his herd to a contracted Harvey Fresh supplier.

Another was understood to be preparing to leave the industry.

Mr Sharpe said there had been no changes to Harvey Fresh's business and the supply and demand fresh milk "balancing act" which had led to the new contracts being offered.

"It was just something that we felt we could do to help them, given the likely situation they faced (in January)," he said.

"It would be to our benefit and to their benefit."

As previously reported, two former Brownes Dairy suppliers Dale Hanks and Graham Manning were forced out of the industry in October due to the milk over-supply crisis in WA and despite efforts by WAFarmers to find and temporarily part-fund an alternative market for their milk.

A third, Tony Ferrero, is attempting to continue milking cows until Christmas and tipping out whatever milk he cannot sell and a fourth, to stay in business, took over a supply contract at a lesser price and volume from another Brownes supplier who decided to retire early.

Brownes had terminated its exclusive two-year contracts at the first opportunity after deciding it did not need their milk, having earlier shut down its Brunswick Junction cheese plant.

Cheese production was unprofitable Brownes claimed but it helped soak up excess spring milk production.

Mr Sharpe said the situation with the five Harvey Fresh suppliers, although precipitated by the same over-supply crisis, was different.

They had contracts with Harvey Fresh which continued to be honoured after they turned down new contracts with Parmalat.

After their Harvey Fresh contracts expired, the company continued picking up their milk this year on a handshake agreement.

Although not bound to, Harvey Fresh gave them six months' notice their milk would not be collected from January.

At the time Mr Sharpe said Harvey Fresh wanted to protect its supply from farmers who had signed with Parmalat.

On Monday he said the situation arose "because a group of farmers all believed their milk was worth more than they were getting".

Harvey Fresh's 52c/l farmgate milk price paid to contracted farmers compares with an average 54.7c/l paid by Lion Dairy and Drinks to its suppliers and 43-45c/l paid by Brownes Dairy.

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FarmWeekly
Mal Gill

Mal Gill

is wool and dairy writer for Farm Weekly

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