SIZE is important to Western Australia’s shrinking dairy industry, according to new Agriculture and Food Minister Alannah MacTiernan.
While premium products and value-adding may be the future, WA’s dairy farmers first need to make a decision on size, she suggested to a room of dairy farmers last Thursday.
Ms MacTiernan intimated they needed to decide whether they were prepared to continue allowing their industry to shrink “one by one” in what she described as “this brutal culling”, or are they prepared to work collectively for the benefit of all?
Last week Ms MacTiernan met with two of the three former Brownes Dairy suppliers dumped last September and three Parmalat suppliers to be dumped next month, and with WAFarmers representatives.
These meetings were scheduled between Ms MacTiernan attending afternoon sessions at the Dairy Innovation Day, on a dairy farm in Busselton, followed by an industry dinner in Bunbury.
The day before Dairy Innovation Day, Harvey Fresh owner Parmalat contacted suppliers on six-month contracts – Mike Norton, Capel, Tony Practico, Bridgetown, and Kieran Chapman, Busselton – to tell them their contracts would not be extended beyond June.
The decision to drop them was influenced by responses of other Harvey Fresh suppliers to a range of proposals put to them at closed meetings last month by Parmalat WA milk supply manager Malcolm Fechney and national field service manager Mark Linton, from the Brisbane head office.
The ultimatum put to Parmalat suppliers was the company wanted either a 10 per cent reduction in overall milk volume or only 70pc of its existing supply base, who agreed to its proposals.
Ms MacTiernan told the WAFarmers-sponsored dinner her meetings had been “torrid” and her introduction to the dairy industry was “a baptism of fire”.
She recognised “a world of pain going on out there in the industry” and was critical of decisions by processors to drop suppliers based on when contracts expired rather than supply performance.
Two of the dumped farmers she met, Graham Manning and Dale Hanks, had been among the State’s best, consistently winning milk quality awards, having flatter production curves and winning a Dairy Business of the Year award.
“We understand there are always painful adjustments in the industry as it comes up and down,” Ms MacTiernan said.
“(But) I guess what happened for the first time is there has been this pain almost rampantly occurring, dependent on when your contract comes up, and I think that is regrettable,” she said.
“I think it is not based on who are the most efficient producers, but on this – and I understand it is not entirely random – notion that our contracted suppliers produce excess milk, what can we do about it, we have to cut (the number of) suppliers that we have.
“I know many people feel the customary practice in the industry has always been different, that people share the pain and everyone gets a cutback on their production rather than this brutal culling.
“(It is) a culling not based on your capacity, but based on when your contract was due up vis-a-vis the others.”
Ms MacTiernan said she “noted” Parmalat suppliers’ decision to reject a levee proposal put to them at last month’s meetings that might have shared costs of trucking future excess milk to interstate markets.
“I wonder whether or not that is the wisest decision that has ever been made,” she said.
“If the industry does not work together and if the industry allows itself (to be picked off) one by one – I can’t remember the precise phrase, but (it is something like) if I do not stand up for someone, what happens when they come for me?
“I do think we should see if there’s a case for a bit more collective identity or collective concern within this industry.
“This is a complex and difficult issue, but I do say I think it is wrong that (only) some farmers are being required to bear the pain of the readjustment.”
Ms MacTiernan said some of her “conversations” had been about how problems of the industry could be dealt with but she was clear farmers and processors should not expect the State government to subsidise them.
“I have to say that with an 82 per cent net debt to revenue ratio, the old days of just shovelling the money out the back of the truck, that’s not a possibility for us anymore.”
Ms MacTiernan said it appeared the WA dairy industry might be “caught in a trap” in the sense that although it produced excess milk, it did not have “critical mass” to move up a step to produce a long-life, value-added product to cushion reliance on fresh milk.
“In some sense the industry is too small to move to that next level – to actually be able to produce and create value-added products we might need to grow significantly,” she said.
“Proposals have been put to me, which I am considering, about whether or not there is a place for us to investigate what might be the future of the industry if we did, ironically, expand so that we had a critical mass to enable us to do something more than just produce fresh milk.
“This is not an easy answer.
“We understand our price structures are such that we are not going to be moving to an export market, we’re talking about an internal market.”
Ms MacTiernan said other conversations had been about capturing more of the premium market.
She singled out Western Dairy vice chairman Mat Daubney and wife Suzanne, who own Bannister Downs Dairy, Northcliffe, as “exemplars of the people who have recognised we need to move into the premium product area as part of the overall profile”.
“To what extent can we continue to rely just on milk in the commodity market?” she asked.
Ms MacTiernan complimented Western Dairy on Dairy Innovation Day and agribusiness team leader Kirk Reynolds on a presentation that analysed statistics from 28 WA dairy farms participating in the Dairy Farm Monitor project.
“I thought one of the interesting insights was that size does not appear to be the critical factor in determining success and a lot of the ‘get big or get out’ that we often hear is not the answer in dairy,” she said.
“It is how you drive your product.
“There are big issues out there, we are going to work to try to solve them.”
Dairy section president Michael Partridge, who met Ms MacTiernan as head of WAFarmers’ deputation, agreed later the local industry had to decide whether to grow or shrink.
“We have two options – we either shrink down to a flat supply curve which requires different management practices and cost structures to deliver to the market exactly what it requires, or we grow so we always meet domestic demand but require processing infrastructure so that supply can be put into export products,” Mr Partridge said.
“If possible, we need government assistance to help us work through these issues and to help us come to a resolution which will safeguard the future of the State’s dairy industry and associated supply contracts for the foreseeable future.
“We encourage Parmalat to work through this with their supply base and we will assist in any way we can to ensure there are no more forced exits from the industry,” he said.
Mr Partridge said Ms MacTiernan understood WA’s isolation made the problem of balancing seasonal supply with demand more difficult but agreed terminating contracts to achieve balance “is not the right way”.
“Processors have the ability to balance the state of play by communicating effectively and working through the issue with their supply base, so contracts must be handled fairly and equitably to ensure a sustainable and profitable future for the industry,’’ he said.
“Contract terminations cause damage to the company’s reputation, and to the industry’s reputation as a whole, and will discourage future investment and young people getting involved in our industry,” he said.
Mr Partridge thanked Ms MacTiernan for taking time to engage with dairy farmers.