Dairy industry rides a roller-coaster year

Dairy industry rides a roller-coaster year

Malcolm Hick (left) provides milk from his robotic dairy and Swiss-trained Chris Vogel of Dellendale Creamery, Denmark, turns it into award-winning cheese which took out a top prize at the 2017 IGA Perth Royal Show.

Malcolm Hick (left) provides milk from his robotic dairy and Swiss-trained Chris Vogel of Dellendale Creamery, Denmark, turns it into award-winning cheese which took out a top prize at the 2017 IGA Perth Royal Show.


WA’S shrinking dairy industry began a turbulent 2017 by contracting just a little bit more.


WA’S shrinking dairy industry began a turbulent 2017 by contracting just a little bit more.

While 2016 had been the dairy industry’s version of Queen Elizabeth II’s “annus horribilis”, ramifications of decisions and subsequent events carried over into the new year in WA.

The larger-than-usual 2016 spring flush oversupply of milk, blamed for some of the industry’s woes, had evaporated by the summer of 2017.

But the anxiety, uncertainty and suspicion felt by dairy farmers lingered on through autumn, winter, spring and was still strong coming back to summer, with more than two thirds of WA’s dairy farmers considering new supply contracts with the same or lower base price for their milk in the second half of the year.

Security, contracts and sliding farmgate milk prices dominated farmer concerns throughout 2017 and seem set to continue as hot topics into 2018.

With WA down to 152 farmers maximum, having lost three dropped by Brownes Dairy and one retired, plus two Harvey Fresh suppliers who bailed out in the previous three months, 2017 opened with one more Brownes supplier going.

Michael and Frances Armstrong, Northcliffe, were on a similar special contract to the three dropped at the end of September and confirmed they were transitioning from dairy to beef cattle.

Brownes did offer the Armstrongs a standard contract when it did not take up an extension on their special contract, but they decided a farmgate price of between 43 and 45 cents a litre was not sufficient to sustain their dairy operation.

At the same time, a report commissioned by Rural Bank and Rural Finance, subsidiaries of Bendigo and Adelaide Bank Ltd, found the “fundamentals” of the dairy industry were sound despite volatility and challenges it continued to face.

It forecast the smallest national herd in at least six years of 1.59 million cows for 2017 and annual milk production per cow down by more than 100 litres to about 5600 litres.

Murdoch University environmental engineering student Laura Senge began a project to design the ultimate zero-waste discharge effluent system for WA dairy farms.

Western Dairy and WA’s Department of Water combined to award a scholarship to Ms Senge for her honours project which became part of Western Dairy’s DairyCare project.

She began by inspecting an innovative system used by Dardanup dairy farmer Michael Twomey who was sceptical she could achieve her aim, claiming there was “no perfect system” for dealing with effluent generated by 500 cows milked twice a day.

In February Lion Dairy & Drinks, which processes and markets Masters and Pura milk brands, confirmed it was transporting bulk milk into WA from South Australia to cover a summer shortfall.

Lion blamed hot weather and reduced nutritional values in silage for the drop in milk production volumes from its 29 WA dairy farmer suppliers.

At the 2017 Australian Grand Dairy Awards two iconic WA dairy products were declared the best in Australia.

Mundella Greek Natural Yoghurt completed a hat trick, awarded Australia’s Champion Natural Yogurt for the third year in a row and Bannister Downs Dairy double cream was awarded Champion Cream ahead of 31 other products in a highly competitive category.

WAFarmers belatedly announced its collaborative experiment in conjunction with Parmalat-owned Harvey Fresh and a Chinese businessman to export fresh WAFarmersFirst milk to the Chinese port city of Dalian had ended.

The fresh milk, which sold as a premium product in gourmet food outlets for the equivalent of between $10 and $11 a litre, was dropped in favour of extended shelf life (ESL) and ultra high temperature (UHT) milk with less critical transport time frames, said WAFarmers president Tony York.

After meeting with political parties in the lead-up to the State election in March, WAFarmers called for a dairy taskforce to be set up to establish a long-term plan to improve sustainability and profitability in WA’s dairy industry to hopefully stop it shrinking further.

Dairy Australia analyst John Droppert and Commonwealth Bank Australia agri-strategist Tobin Gorey independently released reports indicating early signs of recovery in the global dairy situation and predicting improved profitability would eventually flow through to local dairy farmers.

Nannup boutique cheesemakers Bruce and Jane Wilde, Cambray Cheese, created WA dairy industry history when their Farmhouse Gold cheese made from sheep’s milk, became the first non-bovine product to win the Grand Champion Dairy Product title at the 2017 Dairy Industry Australia Association WA annual product awards.

Eighteen of the State’s dairy farmers, two farmers forced out of the industry and a former processor presented allegations of predatory pricing and unconscionable conduct at a national dairy industry inquiry hearing in Bunbury.

Commissioner Mick Keogh from the Australian Competition and Consumer Commission (ACCC) heard first hand how farmers believed they had been unfairly treated or disadvantaged in dealings, including contract negotiations and contract terminations.

Mr Keogh was given an example of the power of supermarket chains over processors producing $1-a-litre milk, with one chain using a contract loophole created by a change of processor owner to shift its contract to another processor for 10c/l less.

At a series of closed meetings with contracted Harvey Fresh suppliers in May, Parmalat advised it wanted at least 70 per cent of them to agree to new supply proposals after their three-year contracts ended in October.

Parmalat said it only wanted 90pc of the total volume of milk its farmers supplied.

But it indicated three suppliers it previously threatened not to collect because they had not signed contracts with Parmalat, would be offered new contracts in January with all its other suppliers, ending six months of uncertainty for the three.

New Agriculture and Food Minister Alannah MacTiernan, the fourth minister in the portfolio in just over 12 months, brought welcome rain with her on a visit to Western Dairy’s annual Dairy Innovation Day.

It was held on a farm near Busselton operated by Wes and Sarah Lammie and Wes’ parents Robin and Betty who had previously farmed at Northcliffe some years ago but re-entered the industry to help Wes and Sarah.

Wes and Robin explained how they took advantage of growth incentives offered by Parmalat to build their herd from 100 to 630 cows over four years but faced a period of consolidating now growth incentives had disappeared.

At a WAFarmers’ dairy section dinner following innovation day, former fifth generation dairy farmer and dropped Brownes supplier Graham Manning and his wife Jayne of Harvey were presented with the Milk Bottle award for the Manning family’s combined 164 years’ service to dairying in WA.

Despite the milk oversupply and dropped dairy farmers controversy of the previous 12 months, Brownes led WA’s contingent in the 2017 Dairy Industry Association of Australia’s dairy product competition.

Its own brand products and Farmdale brand products made for Aldi Australia supermarkets, across flavoured milks, white milk and yoghurt categories, accrued a total of two gold and nine silver medals.

As well, Brownes’ Chill Double Espresso won the Tate & Lyle special award for the highest scoring coffee-flavoured milk.

Next best was Bannister Downs Dairy, Northcliffe, with two gold medals – for mango smoothie flavoured milk and double cream – and eight silver medals.

Mundella Foods, Mundijong, and Harvey Fresh each won one gold and five silver medals.

A roundtable called by Ms MacTiernan, the first meeting of WA’s three major milk processors with State government and dairy farmer representatives since the industry crisis arose almost 14 months ago, confirmed milk processors did not plan to drop more suppliers.

Ms MacTiernan personally cleared the meeting with the ACCC to ensure it did not breach competition regulations.

Renowned for its herd of life-size plastic cows in its shopping centre, South West dairy town Cowaramup was named WA’s 2017 LEGENDAIRY capital.

Former dairy farmer, dairy lecturer and dairy scientist Peter Hutton joined Western Dairy’s science team at its Bunbury hub in July to head research projects, replacing Ruairi McDonnell who returned to Ireland.

Also in July, Western Dairy veterinary scholarship winner, Murdoch University veterinary science student Liz Cork and her research supervisor Herb Rovay, began collecting and testing milk samples in a research project aimed to improve early identification of mastitis in dairy herds.

Discussions with Brownes about impending new contracts for its 54 suppliers raised alarm bells for farmers concerned about a number of issues, but particularly a possibility they could be charged for milk Brownes bought to make up for any significant shortfalls in their production.

Brownes claimed it was attempting to give suppliers more flexibility with choice of three or five-year contracts, 10pc plus or minus variation on contracted supply volumes and ability to sell excess milk to a third party.

When contracts were distributed to farmers the clause allowing Brownes to charge them for milk it bought to make up production shortfalls had been deleted.

While the contracts maintained Brownes’ 43-45c/l base price, they offered an incentive price of up to 61c/l over summer for farmers prepared to produce more milk in those three months.

At the annual WAFarmers’ dairy conference, dairy section president Michael Partridge revealed a “balancing” plant to resolve WA’s dairy industry problems longer term had been discussed with State and federal governments, Dairy Australia and other representative bodies.

Various scenarios for a plant to produce long-life dairy product to soak up excess milk production had been examined, Mr Partridge said.

Swiss trained cheese maker Chris Vogel, Denmark, won the 2017 IGA Perth Royal Show Best Small Cheese Maker special award at his first try after turning a hobby into a boutique wholesale business.

A former dairy farmer, Mr Vogel owns Dellendale Creamery and uses milk purchased from neighbour Malcolm Hick who milks his herd in a robotic dairy.

Mr Vogel’s cheeses won four gold and a silver medal at the show’s dairy section competition.

South West dairy farmers jumped in to help a mate, Brett Milner, in November when he was dealing with a diagnosis of prostate cancer and impending surgery.

About 50 volunteers, many donating equipment as well as time, helped him rake, bale, cart, wrap and stack 930 round silage bales of summer feed for his cows.

Also in November, Brownes ended more than two years of speculation by announcing it had been sold for an undisclosed price to a newly created private company backed by Chinese business and dairy interests.

Brownes is now owned by Australia Zhiran Co Pty Ltd which has Shanghai-based dairy manufacturer Ground Food Tech Co Ltd as a major shareholder.

The Brownes management team will stay with the company.

The year ended with debate over the ACCC’s interim report on its year-long dairy industry inquiry.

The ACCC noted “clear imbalances in bargaining power at each level of the dairy supply chain” and advocated for introduction of a mandatory industry code of conduct, formal dispute resolution process and simpler plain language contracts in its eight interim recommendations.

Controversially, the ACCC concluded however that introduction of $1-a-litre milk in 2011 “did not have an observable impact on farm numbers, output or profitability”.

While it acknowledged $1-a-litre milk had eroded processor margins severely, the ACCC argued it was not the cause of downward pressure on farmgate prices because farmers were paid the same for their milk regardless of whether it went into $1-a-litre or higher value branded product.

WAFarmers’ dairy section disputed the ACCC’s interpretation, claiming savings enjoyed by consumers buying $1-a-lite milk had come out of farmers’ and processors’ “pockets”.


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