Dairy marks 2020 with hopes of a new era

Dairy marks 2020 with hopes of a new era

Dairy
Bannister Downs Dairy's Daubney family, Campbell (left), Mat, Sue, Annalise, Johnson and Libby, marked 15 years as a milk processor in 2020, but celebrations were on hold because of COVID-19. Also, their non-homogenised Full Cream Milk and Mango Smoothie products were named as national champions in the Dairy Industry Association Australia awards.

Bannister Downs Dairy's Daubney family, Campbell (left), Mat, Sue, Annalise, Johnson and Libby, marked 15 years as a milk processor in 2020, but celebrations were on hold because of COVID-19. Also, their non-homogenised Full Cream Milk and Mango Smoothie products were named as national champions in the Dairy Industry Association Australia awards.

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Another big year for the WA dairy industry

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SIGNIFICANT change was the hallmark of 2020 for the local dairy industry as several long-fought-for principles finally came into play.

After years of talking about a level playing field and 18 months of investigations how the power advantage of milk processors compared to dairy farmers in price negotiations could be addressed, farmers welcomed a national dairy code right at the start of 2020.

Then Federal Agriculture Minister Bridget McKenzie surprised the industry by introducing the code on January 1, six months ahead of schedule.

She said the code ushered in a "new era" of fairer bargaining power for dairy farmers.

The economic hurdle the dairy industry had to first clear with a $1-a-litre retail price for milk, which farmers' believed had set an unsustainable end value for the supply chain they were at the beginning of, had been overcome after eight years in 2019.

While the code, as a next logical step, fell short of covering the entire dairy supply chain as farmers had wanted - it does not apply to negotiations between processors and supermarket chains which account for about 80 per cent of retail milk sales - it was welcomed as a move in the right direction.

Apart from setting specific standard specification for milk supply agreements and mandating "good faith" as a requirement during negotiations, the code forced farmers and processors unable to reach agreement on supply price or terms and conditions, to undertake mediation.

Roxy Schoof, Western Dairy's Young Dairy regional co-ordinator who helps encourage young people to stay in the dairy industry, was a Farm Weekly young gun in 2020. Photo by Jenelle Bowles.

Roxy Schoof, Western Dairy's Young Dairy regional co-ordinator who helps encourage young people to stay in the dairy industry, was a Farm Weekly young gun in 2020. Photo by Jenelle Bowles.

This was designed to outlaw a previous 'take it or leave it' attitude that had often prevailed in WA because it was primarily a 'white milk only' market due to its small size.

Four years previously the processors' attitude had seen a couple of very good dairy farmers forced out of the industry - one permanently, one temporarily - because farmers produced a surplus of milk in a good season and processors saw an opportunity to keep farmgate milk prices depressed while their processing margins were being squeezed by a supermarket duopoly.

At the start of the year farmers essentially had a choice of three main processors they could supply and until the introduction of the dairy code, the formal notice processors required farmers to give them in advance if they wanted to switch to another processor, effectively made any change extremely difficult, financially risky or straight out impossible.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell weighed into discussions about the code at the start of the year, reminding dairy farmers her office was there to help with mediation matters.

Western Dairy's December field day co-host Elizabeth Partridge (left) with Jenny Hunter, Collie, Barbara Hossen, Busselton and Dean Maughan, Milne AgriGroup ruminant feeds sales manager.

Western Dairy's December field day co-host Elizabeth Partridge (left) with Jenny Hunter, Collie, Barbara Hossen, Busselton and Dean Maughan, Milne AgriGroup ruminant feeds sales manager.

The code theoretically made it easier for farmers to switch from one processor to another, introducing a 14-day cooling off period before any change took effect.

It also required processors to publish a standard-form milk supply agreement, including a base price offered, in June each year.

For the first time WA dairy farmers could openly compare milk supply agreements to be offered for the next season by Brownes Dairy, Harvey Fresh and Lion Dairy & Drinks.

In June this triggered a flurry of activity with several farmers willing to test the theoretical ease of changing processors under new rules set out in the dairy code.

At the same time, Coles Supermarkets tossed a curve ball into the WA dairy industry's established milk supply and processing game, upsetting a status quo that had existed for a decade since the collapse of the Challenge Dairy Co-operative.

The dairy code requirement to publish standard-form milk supply agreements in June forced Coles to reveal early its plans to deal directly with WA dairy farmers for their milk to be used in its own brand products.

Coles indicated a 'toll' processing agreement and direct supply system it had trialled in Victoria and southern and central New South Wales was being extended to WA, starting October 1.

It said it was seeking up to 38 million litres of milk a year direct from WA dairy farmers south from Pinjarra through the Peel and South West dairying areas, including Waroona, Harvey, Benger, Brunswick, Bunbury, Boyanup, Elgin, Capel and the Busselton region through to Yelverton, Metricup and Chapman Hill.

Farm Weekly young gun researcher Mikayla Mauger investigated whether dairy calves were developing resistance to commonly used parasitic worm drenches.

Farm Weekly young gun researcher Mikayla Mauger investigated whether dairy calves were developing resistance to commonly used parasitic worm drenches.

In contrast to relatively complex pricing arrangements, including seasonal incentives and 'shoulder' payment periods, offered by others, Coles proposed one, two or three-year milk supply agreements based on a simple regime of a higher price for eight months of the season and a lower price for September, October, November and December when the spring flush of ready feed generally resulted in a spike in milk production.

Coles also offered a competitive average base price which worked out at 51.46 cents per litre.

Brownes Dairy offered 50.5-52.58cpl, Lion Dairy & Drinks offered 46.55-51.05cpl and Harvey Fresh offered 43.42-45.42 average base prices on their websites under the dairy code requirements, depending on whether milk supply agreements were exclusive, where farms were located and quality of milk produced.

For the past five years Coles' WA own milks had been processed and packaged by Lion Dairy & Drinks at its Bentley factory from milk Lion purchased from suppliers for both its own Masters brand milks and Coles' own brands.

Lion Dairy & Drinks advised its 28 suppliers to "consider their options" on the basis it assumed some would sign new contracts with Coles.

Under a new toll contract Lion began processing and packaging milk bought by Coles direct from farmers for its supermarkets as Coles' own brand products in October.

Under a similar toll arrangement, Brownes processed and packaged milk bought from farmers by Coles for its own brand products sold through Coles Express petrol and convenience sites.

By the end of October Coles confirmed it had 10 dairy farmer suppliers in WA and each had signed a three-year contract, which was viewed by the industry as either a telling sign of optimism or a result of uncertainty from Lion on how much milk it would need going forward.

From October 1 Coles technically became a fourth major dairy processor in WA, potentially introducing greater competition for dairy farmers' milk into the processing sector - something farmers had long argued was needed to secure the long-term future viability of the local industry.

So 2020 ended with six milk processors in WA - apart from the main four, Woolworths has a toll arrangement with Brownes for milk it buys from two dairy farms for its Farmers Own brand milks and Bannister Downs Dairy at Northcliffe, which celebrated its 15th years as a processor in 2020, processes its own milk and that of a neighbour for its own range of dairy products.

But despite the dairy code and farmgate milk prices generally about 2c/l better in 2020 than in the previous year, WA's dairy industry continued to shrink in 2020.

It is now down to 135 dairy farms - from about 140 early last year - and milk production has continued to decline.

Western Dairy statistics show local dairy farmers produced 364,299,660 litres of milk in the 2019-20 financial year, compared to 374,401,618L in 2018-19 and 392,209,893L in 2015-16.

Tellingly, the value generated by milk production has declined from $205,180,781 in 2015-16 to $190,442,251 in 2019-20, according to Western Dairy.

Because of this, some in the industry, including Milne AgriGroup ruminant feeds sales manager Dean Maughan who spoke to Farm Weekly at a dairy field day in December, have noticed what could become a fundamental shift in the local industry power base.

"With fewer farmers producing less milk, the pressure will be on processors to hang on to the suppliers and the volumes they have," Mr Maughan pointed out.

"That can mean only one direction for farmgate milk prices into the future."

Brownes Dairy managing director and chief executive officer Tony Girgis also mentioned reduced numbers of farmers and declining milk volumes when asked to comment on 2020.

"The number of producers shrunk due to retirements and exits to beef, among other things, which reduced the excess supply that has plagued the industry for decades." Mr Girgis said.

"(But) despite the introduction of the dairy code, which on the whole has been a good positive for dairy farmers, there continues to be challenges facing the industry," he said.

Another significant change for the local dairy industry during 2020 was WAFarmers dairy section president Michael Partridge handing over to Ian Noakes in September.

Mr Partridge, who runs the high profile and historic White Rocks Farm, Benger, with wife Leanne, children Harrison and Oaklee and parents David and Elizabeth, had during eight years - first as dairy section vice president and then as president - represented the local industry through its most turbulent times in recent years.

Mr Partridge had fronted the farmers' fight against $1/L milk - introduced by Coles in 2011 - and had ultimately been successful, with Woolworths and then Coles and Aldi reluctantly last year changing their pricing policy to return more money to dairy farmers.

He provided personal support to one of the farmers forced out of the industry in 2016 and oversaw WA dairy farmers' input into preparation of the dairy code.

Personal frustrations and disappointments though were an inability to convince the Australian Competition and Consumer Commission (ACCC) of a need for one code covering the entire dairy supply chain because retail pricing impacted supplier pricing and not being able to secure better returns for dairy farmers overall.

Mr Partridge had followed in his fathers' footsteps as dairy section president and also as a national councillor for Australian Dairy Farmers.

Harvey dairy farmer, Federal Forrest MP and Assistant Minister for Regional Development and Territories Nola Marino paid tribute to Mr Partridge and his "extraordinary" contribution to the local dairy industry.

Another industry change, started in 2019 and still progressing - but in a different direction - at the end of 2020, was ownership of Lion Dairy & Drinks.

At the start of 2020 WA had three main foreign-owned dairy processors - Brownes owned by Shanghai Ground Food Tech Co among a consortium of Chinese investors, Harvey Fresh owned by the French global dairy group Lactalis and Lion owned by Japanese brewing company Kirin Holdings.

Come January, WA is likely to have an Australian-owned dairy processor with completion of a takeover of Lion's dairy and fruit juice business by NSW-based Bega Cheese.

But it has been a disrupted process.

It was common knowledge within the national dairy industry for the past two years Lion was looking to divest its dairy and fruit juice assets to concentrate on its core brewing business.

In late 2019 Lion accepted a $600 million offer from China Mengniu Dairy Company Ltd for the businesses it wanted to divest and in February this year the ACCC approved the buyout, but it needed one more tick of approval from the Foreign Investment Review Board.

In August, as Australia's trade relations with China continued to worsen, Federal Treasurer Josh Frydenberg stepped in and blocked the sale, citing national interest as the reason.

In November Lion announced it had accepted another ACCC-approved offer of $534m from Bega Cheese for its dairy and fruit juice businesses.

Bega will take over the Bentley factory which processes Masters brand white milks, iced coffee and flavoured milk drinks as well as Dare and Farmers Union brand iced coffee and Pura cream.

It will also inherit Lion's 20 WA dairy farmer suppliers and is expected to honour their milk supply agreements which run until August next year.

While these and other changes were occurring, WA's dairy industry was of course also dealing with the impacts of COVID-19 and a global pandemic.

As an essential service, the dairy industry was less impacted than many other industries.

Some WA dairy farms had to manage without their normal backpacker workforce which was suddenly cut off by closed borders and the local industry's fledgling export business was quickly strangled by a lack of overseas flights with competitively priced freight rates.

Western Dairy was forced to suspend its extension workshops for several months and for the first time in its 20-year history the annual Dairy Information Day - this year scheduled to be held at White Rocks Farm in May - was cancelled.

But there were positive aspects too.

"The (COVID) lockdowns forced most to go back to basics on nutrition, health and home cooking, all of which were positives for dairy," Brownes' Mr Girgis said.

"I think dairy did very well with zero (COVID) cases across the entire supply chain and the fact that Western Australians were confined to travelling intrastate actually assisted the industry with cafes and restaurants basically operating at near capacity.

"As someone who has experienced and lived through a number of recessions, the 1987 crash, the Asian financial crisis in the late 1980s, and the GFC (global financial crisis), COVID was definitely a different beast.

"One great positive is how people rallied together to deliver the safe environment that we currently enjoy in Australia.

"Finally for me as a CEO, it was with much pride that I witnessed my employees at Brownes rally around the community and look to help those who were vulnerable, particularly during the lockdown.

"Hence the introduction of the Milko (home delivery) initiative which took seven days to get off the ground from scratch - passion and innovation at work."

More generally, there were also positive aspects to 2020 as WAFarmers' current dairy section president and Forest Grove dairy farmer, Mr Noakes, pointed out.

"For me the highlight of 2020 was the improvement in seasonal conditions," Ian Noakes said.

"In the previous two years we had farmers going into debt just to feed their cows because of the poor growing season and the high cost of bought-in feed.

"Grain prices are still high, but they are coming down slowly and we've had a really good season which with our (WA dairy farmers') flat production curve has enabled many to take advantage of the higher summer milk prices off grass."

As well, high prices for Angus and other beef crossbred cattle had been a "bonus" for dairy farmers, Mr Noakes said.

While the increased competition for milk through Coles buying direct off farmers was welcome, he pointed out the 10c/L extra being returned since early last year to farmers from Coles' retail own brand milk sales had stopped and its 10 suppliers were now the only direct beneficiaries.

It was also unlikely Coles' own brands' share of the retail milk market would grow significantly in future to increase overall demand for milk, Mr Noakes said.

So the battle to achieve better farmgate prices for dairy farmers would continue, he said.

Other 2020 dairy industry highlights included:

- WA dairy producers won four Champion categories at the 21st Australian Grand Dairy Awards.

Milk winners were Brownes Dairy with Brownes Dairy Hilo Lactose Free Milk as Champion modified milk and Lactalis Australia's Harvey Fresh plant with its Pauls Farmhouse Gold Cream on Top as Champion milk.

Mundella Foods, Mundijong, won two Champion awards with its Greek yoghurts - its Greek Vanilla Yoghurt was Champion in the flavoured yoghurt category and Greek Natural Yoghurt Champion in the natural yoghurt category.

Later in the year Bannister Downs Dairy won two national champion best-in-category trophies at the COVID-19 delayed 2020 Dairy Industry Association Australia awards for its Non-homogenised Full Cream Milk and Bannister Downs Dairy Mango Smoothie.

The only other WA product to win a 2020 DIAA national champion award was Hunt & Brew Cold Brew Coffee Colombia which is processed and packaged through an association with Brownes Dairy in Balcatta.

p Brownes announced that for the first time in 14 years, cheddar cheese made in WA from milk sourced from local dairy farms will appear on supermarket shelves, not just across WA but nationally.

It planned to replace a portion of the 50,000 tonnes of cheese - 15,000t of it cheddar - imported into WA a year from interstate and New Zealand with its own products made at its Brunswick Junction cheese factory.

- For a seventh consecutive year Waroona dairy farmers Luke and Vicki Fitzpatrick were among the top 100 best quality milk producers in Australia.

The Fitzpatricks - Vicki is a former Western Dairy chairwoman - and three other consistent high-quality WA dairy farm enterprises were named as gold medal winners in Dairy Australia's 2020 Milk Quality Awards.

The other WA gold medal winners were Harold, Joan and Bevan Harrison trading as HD Harrison & Co, Rosa Glen, Ian and Ruth McGregor, Busselton and Matt and Angela Brett, Ferguson Valley.

- White Rocks Farm, Benger, originally to have hosted a cancelled Dairy Innovation Day in May became the location for Western Dairy's field day in December.

Third, fourth and fifth generations of the Partridge family dairy farmers on White Rocks welcomed about 130 farmers and dairy industry representatives to their farm for the field day.

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