Uncontracted dairies dumped

Parmalat-owned Harvey Fresh last week notified five of its out-of-contract suppliers it will stop picking up their milk in early January.

But it said its situation was different to that of competitor Brownes Dairy.

Brownes in April notified four suppliers on two-year higher farmgate-price contracts they would not be renewed, then in May told them they will not be offered standard contracts and their milk would not be collected after their contracts expire on September 31.

Harvey Fresh claimed its suppliers had previously been contracted, but had chosen not to sign new standard contracts.

Four of the five had been out of contract since December 31 and the fifth had been out of contract for a shorter period, Harvey Fresh claimed.

It said their milk had continued to be collected under a "handshake" agreement which it had now decided to end to give preference to its 64 contracted suppliers.

Harvey Fresh said under the terms of the expired contracts, it had been required to give six months' formal notice and it had done so as a matter of courtesy to the five suppliers.

It claimed its contracted farmers would not be "impacted".

In a statement issued last Thursday Harvey Fresh said the decision to drop five suppliers "is a direct result of the sustained global dairy oversupply and the loss of planned export sales".

It said when Parmalat acquired Harvey Fresh in 2014 the WA dairy industry had been "in decline for three years" and it had introduced "longer-term stable pricing and incentives to grow" which had worked.

Harvey Fresh said WA moved from a milk shortfall to milk surplus but loss of a "low-margin private-label (Coles) supermarket contract last year was a big challenge" which it had planned to counter with increased export sales, particularly of UHT (ultra high temperature long-life) milk.

"However, in the last few weeks plans to further grow exports that were in place have been disrupted as the global oversupply of milk, mainly out of Europe, is being dumped across Asia at distressed prices in all categories including cheese, milk powders and UHT milk," it said.

"It has become very clear that this global situation is unlikely to change or improve over the next six to 12 months and with the expected continuation of increased milk supply from the existing farm base, Harvey Fresh finds itself in a position where we will have too much milk."

It said it hoped global oversupply will correct itself in 2017 and it will be able to continue to grow its UHT sales to Asia.

Harvey Fresh farm liaison manager Ken Sharpe later defended the company's action.

"We offered new contracts to all our suppliers in October, 2014, and by April (2015) most had signed the new contracts which offered 52 cents a litre plus growth incentives - Brownes' price was 42 cents delivered," Mr Sharpe said.

"For whatever reason - holding out for a higher price, industry politics or whatever - the five did not sign new contracts with us.

"It was due to our generosity that after their contracts expired they continued to be picked up for another six months on a handshake agreement.

"And they will continue to be picked up for a further six months.

"Our commitment now is to the 64 suppliers who have signed contracts with us because they've shown a commitment to us.

"The others haven't shown any commitment," Mr Sharpe said.

He said Harvey Fresh had demonstrated its commitment to suppliers by paying them for more than a million litres of milk tipped down the drain earlier in the year when tankers could not get to the factory during the Waroona-Harvey bushfire.

Mr Sharpe also said it had backdated growth incentive payments for some.

"I haven't spoken to all of them, but I have spoken to a number of our contracted suppliers about the situation and so far all of them have been supportive of what we've done," Mr Sharpe said.

WAFarmers Dairy Council president Phil Depiazzi said WAFarmers and other stakeholders were working closely to find a solution to the milk oversupply problem.

"There is a fine climatic balance needed to ensure dairy cows produce enough milk to meet demand, and while Western Australia has had a seemingly excellent start to the season, this means we now have supply outstripping demand," Mr Depiazzi said.

"To address this issue, WAFarmers is working collaboratively and co-operatively with the State government, processors, suppliers and other industry representatives to find a way forward and get the balance back.

"Given there are only around 150 dairy farmers in the State, it is a priority for us and the larger dairy industry to find a solution that safeguards the future of the industry while at the same time maintaining, if not increasing, the number of people involved in the WA dairy industry," he said.