Farmers tell inquiry $1 a litre is hurting farmgate returns

They also believe “step-down” price reductions imposed by major Eastern States dairy processors Murray Goulburn and Fonterra on their milk suppliers last year had “flow-on” effects on WA’s dairy industry.

These were some of the concerns WA dairy farmers raised with commissioner Mick Keogh at an Australian Competition and Consumer Commission (ACCC) dairy inquiry farmer forum at Bunbury.

The ACCC last week published on its website a summary of issues raised at that March 16 forum.

WA dairy farmers’ relative lack of negotiating power with the three major processors on price, practical difficulties in trying to move from one processor to another and a lack of clarity of ACCC collective bargaining processes, were also raised as issues by farmers.

“Low retail prices of all dairy products, and the pressure this places on the farmgate price, was a prominent concern raised at the forum,” the summary said.

“Farmers consider that despite a spike in sales of branded products during promotions, low-price generic products are the bigger seller,” it said.

Statistics from Dairy Australia’s 2016 Dairy Industry In Focus report indicate dairy farmers’ intuition is right.

According to the statistics, branded dairy product sales comprised 45 per cent of total dairy sales across Australia in 2015-16 while private label – mainly Coles’ and Woolworths’ own brands – comprised 55pc.

The sales ratio between branded and private label has remained the same over the past three financial years. despite a steady 2.8pc growth in total dairy product sales, the statistics showed.

“Farmers perceive that processors lack bargaining power relative to supermarkets – their main domestic sales channel – and that this has negative effects further down the supply chain,” the ACCC said.

As well, the voluntary Food and Grocery Code “intended to govern certain conduct” by grocery retailers and wholesalers in their dealings with suppliers, was seen by some as “ineffective”.

“Farmers stated that the price cuts in Victoria have flowed on to WA, as prices offered since the step-downs in Victoria have been lower,” it said.

The flow-on effect of the Victorian price cuts had damaged WA’s dairy export markets “with international buyers unwilling to accept higher WA prices in light of the Victorian cuts”.

On competition for farm milk, supply contracts and negotiating with processors, the ACCC summary said farmers believed the only times they could negotiate with processors was when milk was in short supply or they had the option of an alternative processor to go to.

But in recent times, it said, there was an over-supply situation because farmers had responded to processor signals to produce more milk, and as a consequence, there was no demand from processors for new dairy farmer suppliers.

Compounding the problem, the summary said, was timing of contract renewals not aligning between processors which made farmers reluctant to give notice to one processor because of the risk of not immediately finding another to buy their milk.

Farmers were concerned about breaching contract terms if they started negotiations early with an alternate processor and some processors declined to negotiate with farmers already under contract to another processor.

Some contract terms and conditions, particularly termination clauses which required farmers to give much longer notice than processors, were seen as “unreasonable or unfair”, the summary said.

Exclusive supply arrangements were seen to limit farmers’ opportunities to manage risk, it said.

Clarity on farmers being able to negotiate as a group and hold discussions with the three processors on industry issues without risk of contravening ACCC rules, and more regular communication and clearer market signals from processors, were issued raised with it, the ACCC said.

It said WA farmers acknowledged their geographic isolation was part of the problem, making it costly to truck excess milk to interstate markets, and this was compounded by a lack of milk processing options – WA has only one UHT (ultra high temperature) plant where previously it had two.

As previously reported in Farm Weekly, 18 of the State’s 142 dairy farmers and two former Brownes Dairy suppliers forced out of the industry last September – Richard Ferraro, Waroona and Graham Manning, Harvey – attended the dairy inquiry farmer forum.

WAFarmers was well represented with dairy section president Michael Partridge, senior vice president Ian Noakes and vice president Paul Ieraci, as well as past presidents Phil Depiazzi and Peter Evans and policy officer Kim Haywood attending.

Industry consultants putting their views included Kevin Sorgiovanni, a Harvey Fresh director in 2014 when the family business was sold to Parmalat.

No processor representatives attended the forum but Mr Keogh said afterwards they would be interviewed and were compelled to provide information.

Summaries of the other seven dairy inquiry farmer forums, held in Victoria, New South Wales, Tasmania, South Australia and Queensland, are also on the ACCC website.

The ACCC expects to give its report on its national inquiry and recommendations to the federal treasurer by November 1.