TWENTY nine WA dairy farmers supplying processor Lion Dairy and Drinks (LDD) received their first extra payment as a result of Coles Supermarkets dropping $1-a-litre milk, in last week's milk cheques.
An LDD spokeswoman said the company expected an extra farmgate payment equivalent to 3-3.5 cents per litre (cpl) from Coles' 20c and 30c price increase last month for its retail own brand (ROB) two-litre and three-litre milk.
LDD, which processes Coles' ROB milk in WA under contract, is passing the extra payment back to farmers on behalf of Coles.
"The amounts paid each month will vary over time, based on actual total milk production and Coles' ROB 2lt and 3lt sales volumes in WA each month," the spokeswoman said.
"Lion Dairy and Drinks' average farmgate milk price for WA, factoring in all regions, is 50.1cpl.
"The Coles ROB funds are being passed back to our farmers as an additional payment on top of this."
Coles was first to introduce a $1-a-litre ROB price in 2011 and, along with Woolworths which followed suite, maintained that price until mid last month despite producer and processor costs increasing each year with inflation.
WA's dairy industry joined other Australian dairy regions in maintaining a campaign against $1-a-litre milk for depressing farmgate prices to unsustainable levels and forcing some dairy farmers out of the industry.
As reported in Farm Weekly, Woolworths abandoned $1-a-litre ROB milk in February and the first extra monthly payment was passed back by Brownes Dairy - it processes Woolworths' milk under contract - to its 49 suppliers last month.
After initially estimating the extra payment would be about 2cpl, Brownes has since confirmed it was closer to 2.5cpl.
Brownes said it was paying its suppliers in the high 40s to mid 50cpl depending on grade and milk fat and protein components, plus the extra from Woolworths' ROB sales.
WAFarmers diary section president, Michael Partridge - an LDD supplier - confirmed the extra payment came as part of last week's milk cheque.
"I haven't done the sums yet to see how much a litre it was," Mr Partridge said.
"But it is certainly welcome and helps ease some of the pain we're experiencing from high grain and fodder prices."
Both LDD and Brownes said claims in a recent Rabobank report of record unused production capacity in the dairy industry did not apply in WA.
LDD, which has been put up for sale by parent Kirin Holdings, last year completed a three-year $43 million upgrade at its Bentley plant.
"Part of the rationale for the Bentley investment was to create increased capacity and manufacturing capability on site for the future," the LDD spokeswoman said.
"We're not experiencing any unplanned issues in that regard".
Brownes managing director Tony Girgis said while the latest Dairy Australia production figures showed a national 2.5 per cent decline to the end of February and drops of 7-10pc in Victoria, New South Wales and Queensland, "the situation is not as dire in WA as the east coast".
"Our supply is bang on to our forecast and we have not seen any production drop and zero noise from our farmers," Mr Girgis said.
In the report released last week Rabobank senior dairy analyst Michael Harvey warned of "considerable headwinds" for the Australian dairy industry continuing in the 2019-20 season despite some "green shoots on the horizon".
One of those "green shoots", Mr Harvey said, was an apparent "bottoming in the margin cycle" with farmgate prices forecast to improve.
An indicative weighted average farmgate milk price in the southern export region (south-east Australia) of $6.40 a kilogram of milk solids was anticipated in the coming season - a mark only attained or exceeded once in the past, he said.
Mr Harvey said dairy farmers' ability to capitalise on predicted higher farmgate prices would be determined by seasonal conditions and the cost of purchased feed.
"The importance of a timely autumn break this season cannot be overstated," Mr Harvey said.
"The volume of milk solids in the system is now at a 24-year low and milk supply will drop further without an autumn break.
"Soil moisture profiles are below average, there are shortages of home-grown feed and high water and purchased feed costs are leading to elevated cost of production.
"While dairy farm operators are mitigating the margin squeeze by making adjustments to their feeding programs and reducing herd sizes, the need for a timely autumn break is critical if farmers are to grow their own home-grown feed and create a feed 'wedge'.
"Otherwise we will see feed shortages quickly emerge on-farm."
The estimated $6.40kg for milk solid payment for south-east Australian dairy farmers is equivalent to about 45.7cpl, so prices Brownes and LDD pay their suppliers in WA compare very well.
However, the report's concerns about high feed costs apply equally to WA.
