Innovative dairy ways start to pay off

The contract rewarded suppliers who increased milk volumes, particularly over summer and autumn months when production on Western Australian dairy farms usually fell away due to seasonal conditions.

It was first offered before Parmalat-owned Harvey Fresh lost a high-volume Coles private label milk processing contract to competitor Lion Dairy & Drinks, but has been blamed for sending the wrong “message” last year when additional growth was not needed in a good season.

Dairy farmers partly blame the contract and its growth “message” for the State’s milk oversupply problem that so far has seen two former Harvey Fresh suppliers leave the industry in January with three more suppliers due to be dropped this month.

But father and son farmers Robin and Wes Lammie, hosts of this year’s Dairy Innovation Day, are on the opposite side of the incentives contract.

They built their business on about eight cents a litre more than standard price the incentives paid them and admit growing at least six-fold would have been “a really long road” without incentive payments.

Three months before Parmalat offered them an incentives contract, they started milking 105 cows in a dairy renovated with second-hand equipment on a small lease property near Bunbury.

For Robin it was a return to dairying after 20 years establishing and running Bunbury Freight Service.

For Wes it was a new career after professional football.

They were the first farmers to sign Parmalat’s contract.

“I saw it as the perfect opportunity to capitalise over the next three years,” Robin told a Dairy Innovation Day audience.

“As soon as dad got his head around the incentive contract and explained it to me I realised we were in a great position to take advantage, with dad’s business sense and my ambition,” Wes said.

In their first month, in January 2014, they produced 59,000 litres of milk.

In April they signed with Parmalat and in January 2015 produced 200,000L, Robin said.

They bought cows and used lease blocks to supplement their dairy base, then last year consolidated their operation on a 400 hectare lease property at Busselton.

According to figures presented at Dairy Innovation Day, in the 12 months until the end of March, they milked 630 cows on a 300ha milking platform with 100ha support area and produced five million litres of milk for Parmalat – equivalent to 8000L a cow or 16.750 litres a hectare.

With incentives, they were paid 59.5 cents a litre.

A higher than average stocking rate and higher reliance on concentrates – their milking herd’s diet was 27 per cent grazed pasture, 16pc fodder and 57pc concentrates – saw a cost of production equivalent to 45.5c/l with purchased feed a 20c/l contributor to that cost.

Not having capital tied up in land enabled them to seize opportunities as they arose and contract incentives also helped secure finance for herd expansion, Robin said.

Having good relationships with property owner – Busselton businessman Ross Denny – and their bank manager also helped, he said, as did being “pretty savvy on purchases” and saving money on equipment by buying second-hand when appropriate.

Only part of the profit from growth was ploughed back into infrastructure.

Wary of being reliant on growth for profit beyond the three years of the contract, Robin said servicing loan interest and principal ensured their debt ratio was structured so the farm could continue operating if needed on the standard milk price.

“Take off that incentive, we’ve still got a business,” he said.

“We knew it (incentive) wouldn’t last, the first two years I didn’t think too much about it, we just concentrated on growth and efficiency.

“In the past 12 months we’ve concentrated on consolidating to operate without the growth incentives.

“Now, with the end of incentives, I recognise that we will have to look at our costs.”

Robin said there was an opportunity to lease adjacent land to grow silage.

“The cost of grass is low so we’re looking to lease neighbouring land and concentrate on growing as good a grass as we can on it for the cows – cutting grass shorter so it retains more protein and (for) higher digestibility.

“The intention is not to feed less, but to feed higher quality silage,” he said.

Parmalat’s WA milk supply manager Malcolm Fechney told a Dairy Innovation Day audience Parmalat’s “challenge going forward” was its “critical” message on supply and demand.

“We can’t allow one to outstrip the other without a consequence,” Mr Fechney said.

“So from a relationship point of view, we’ve got to stick our plans up to view and share our business model so we (processor and suppliers) take the journey together.

“If we grow we have to make sure our suppliers grow with us.”

Mr Fechney said “transparency, honesty and sitting down at the kitchen table” were keys to building relationships between processor and suppliers and he hoped for more “one on one” discussions with suppliers in the future.

“There’s a better understanding from one-on-one conversations,” he said.