COWRA dairy farmer Colin Thompson was on a mission when he walked through the doors of NSW Parliament House, and he had one message for the NSW dairy industry – hope.
Colin, the recently elected chair of the NSW Farmers Dairy Committee, gave the opening address to the NSW Dairy Forum, a groundbreaking conference to bring together the many stakeholders in the state’s dairy industry for the first time in almost a decade.
For the past 10 years, NSW dairy producers have endured challenge after challenge in a business environment fraught with difficulty. Stagnant prices, escalating costs and the worst drought in a lifetime have combined to threaten the viability of this vital rural industry. Now, Colin told the Forum, is the time to look for solutions.
“As the drought intensifies, feed and water supplies are at critically low levels as farmers are pushed to their limits and beyond,” he said.
“Production continues to decline, cow numbers and herds are decreasing as farmers look for ways of surviving or simply look for a way out. But it doesn’t have to be that way.
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“In NSW we are largely a fresh milk state, the largest fresh milk market in Australia. Farmers should not have to use up the equity in their own farms in order to supply NSW with a reliable, high quality and nutritious product.
“As demand increases and supply diminishes, the prices for a commodity such as milk should go up. That’s how it works with most other commodities. But not with milk. We are locked into a system where retailers – despite the recent and encouraging prices increase – insist on providing consumers with dairy products at a discount that we, as an industry, simply cannot afford.”
Colin said that as recently as 2011, home-brand milk retailed in NSW at $1.30 per litre. But for the next seven years it sat at $1 per litre. “Today, despite the increases in costs in every facet of our business as well as the impact of the crippling drought, milk is still selling for less than it was eight years ago.”
Dairy farmers Malcolm Holm and Robert Miller arrived on the steps of the NSW Parliament House to take part.
The purpose of the Forum, he said, was to explore how the industry can change and break the financial impasse between retailers and suppliers, creating profitability all along the supply chain and not just at the supermarket counter.
“We want to send a message of hope and advocacy to our dairy farmers,” he said.
“The advocacy bodies gathered here today represent some of the brightest and best we have, and they have recognised that there must be unity in the industry and this Forum, and the people gathered here are evidence of that unity. We will continue to work together to create a united and single voice for our industry.”
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NSW Minister for Agriculture and Western NSW, Adam Marshall.
The Forum, set up by NSW Farmers and Dairy Connect, gathered state politicians from both major parties, experts from public and private sectors, representatives from leading processors as well as 60 dairy farmers. Speakers included Deputy Premier John Barilaro, Parliamentary Secretary for Agriculture Michael Johnsen and Shadow Minister for Primary Industries Jenny Aitchison.
NSW Minister for Agriculture Adam Marshall told the Forum the state government will meet one of its key election promises, to appoint a NSW Fresh Milk and Dairy Advocate. The advocate will work with the Australian Competition and Consumer Commission's
Dairy Specialist to bring processors, retailers and farmers to the table to talk about the issues affecting the industry, and support the implementation of the national mandatory dairy code and evaluate its effectiveness.
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“My sense of it is that there is a strong support in the community to pay a proper price for milk as long as that price is passed along to you, the people who produce it,” the Minister said.
The government will announce the appointment of the Dairy Advocate soon, he said. He added that the government plans to invest in a marketing campaign to promote the dairy industry and educate the public in the choices it makes about milk product in supermarkets.
However, one of the keynote speakers at the Forum, Professor Ian Lean, a veterinarian and renowned dairy expert, said the problems for the industry in NSW ran much deeper than marketing messages. In fact, he said, it is the structure of the NSW dairy market that presents one of the biggest hurdles to farm profitability.
Simply put, he said, the dairy market in NSW is controlled by the major retail supermarket chains. Through market domination, retailers hold the power to set milk prices for farmers, processors and consumers. But the set price is often below the cost of production.
Sheena Carter of Dairy NSW speaking as part of a panel session on farmers’ profitability.
As such, farmers, politicians and consumers need to acknowledge that the dairy market as it stands fails farmers before their milk has even left the farm gate.
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“The market isn’t a plan,” he said. “The market is a reality, but it is not a plan. But because in the past politicians have thought of the market as a plan, and we have allowed the market to operate as a plan for the industry, we have failure.
“We need to do a lot more to provide the environment that will allow farmers to be successful and profitable. First and foremost, we need an equivalence of negotiation power. It is unreasonable to have many producers with small output posed against those who dominate in terms of market share. This is not a market. It is an oligopoly.”
Irrigated crops using fresh and recycled water is just one of the ways that Colin Thomson with his wife Erina have remained profitable after deregulation. Here, Colin sets up a pivot irrigator in a field of lucerne. Credit: Pip Farquharson.
An oligopoly is a market condition that occurs when a few sellers dominate the market, wielding disproportionate influence on prices in much the same way as a single seller unduly influences prices in a monopoly. In the dairy industry, this retail oligopoly keeps prices low, directly impacting farm profitability.
“There is a problem with the market structure in NSW and unless that is acknowledged and recognised – and perhaps it will be through the NSW Fresh Milk and Dairy Advocate – then there is no room for farmers to move forward,” Professor Lean said.
Discussions on how to make Australian milk profitable again
Banks and financial institutions also need to recognise the need for dairy farmers to have access to money, Professor Lean says.
“There needs to be a willingness among the banking community to accept risk and for farmers to rejuvenate their farms and also accept risk.
“Farmers need to accept the responsibility to change. Change is inevitable and it will be part of the future environment so clinging to old practices is not part of the solution,” says the Professor.
The Cleary family near Wauchope demonstrate how successful innovative new technologies can be for dairy farmers in their switch to automatic drafting and pregnancy sensors that are helping lift in-calf rates. Credit: Gethin Coles.
“You can’t ask the market to change and swing back to you if you don’t accept risk. There is a need for dynamism on all sides.”
He also said it’s important to accept that both farmers and processors are hurting. “Many of the dairy processors across Australia have failed during the past few years,” the Professor said.
While structural changes to the dairy market are vital, so too is the need for technological advance as well as innovation. Professor Lean said two key improvements are needed to save the dairy industry.
The first is to harness water. “Water is the number one issue for farmers across the country, especially dairy farmers,” he said.
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“We need to talk about unlocking the potential of water. The second is unlocking the potential of our cows. Most cows are operated at only 50% of their potential capacity. It doesn’t match other world production. And lastly we should look to unlock the potential in the milk itself.”
Innovations will help the industry take advantage of the shortfall in NSW milk supply, which is a staggering 200 million litres of milk a year, he said. This shortfall is caused by drought but also by farmers reducing herds, and therefore production, because of rising feed costs against stagnant or diminishing incomes.
Managing farm costs is also a vital aspect of the future. The University of Sydney’s Professor Yani Garcia, an international expert in dairy production from pasture, told the Forum managing cost is the major difference between profit and failure.
“We have some farmers who are struggling with the loss of profitability, especially during the past three years, but at the same time we have a quarter of farmers making good-to-high profit margins,” he said.
“We have to become much better around the way we manage our costs. We must stop people leaving the industry. At the same time, we must ensure that the farmers in the top 25% remain profitable because that is where the major part of the industry’s reinvestment will occur. But those different farms have different needs.”
Dubbo dairy farmers Erika and Steve Chesworth use an award winning production system, increased milking and high animal welfare standards to allow them to produce and market their branded products to consumers. Credit: Pip Farquharson.
Part of the solution, he suggested, was an overarching industry body that could get the best out of all the other industry bodies. “We need a platform to which all stakeholders can contribute,” he said.
“That will help unlock the full potential of milk as a product. And then there is the potential of the cow. We must bring the public into our industry, to engage them and have them understand us. These are the biggest issues for food production in Australia in the years to come and milk is a key part of that.”
Producers at the Forum told The Farmer the event had provided an important starting point in the process of industry reform. “There is no use pretending that sitting around in a room and talking is going to solve everybody’s problems quickly. It’s not,” said South Coast dairy farmer Robert Miller, who owns and operates the Narrawilly dairy at Milton.
“There are no quick fixes. But we must evolve if we are going to survive. And this is an important first step.
China’s growing demand for Australian milk
“This is the first time farmers and processors have sat in the same room in more than a decade. The truth is that farmers need the processors as much as the processors need the farmers,” says Robert.
“If the farmers aren’t producing milk because costs are too high, and they can’t get a fair price, then the processors don’t have a business and the retailers don’t have anything to sell. Working in cooperation is the best way forward for us all.”
“A lot of people look at the dairy industry and see the negatives but there are a lot of green shoots in the paddock too,” said milk producer Malcolm Holm, who runs a 580-head herd at Blighty in the Murray region.
“Those green shoots include that recent 10c a litre price rise [on $1-a-litre supermarket milk]. I think that is very promising as an indication that things are changing, but we must stand together to make that change happen. A lot of people have talked about how fractured the industry is, but I think this Forum is a great example of just how united we are.”
That sense of cohesion, said Colin Thompson, is what will help rebuild both ability and profitability for the NSW dairy industry. “I heard a little quote last week. It said, ‘You will hear what can’t be done often’. For too long, that is what we have been hearing as an industry – what can’t be done. Today we are ready for change and farmers are ready to hear what can be done.”
Glenmore dairy farmers Gavin and Karina Moore are doing their part for the dairy industry by teaching the younger generation about the importance of food and where it comes from. Credit: Nick Cubbin.
China’s vast consumption of fresh milk is a potential game changer, according to milk processor and exporter Emad Jomaa, from Nepean River Dairy in Greater Sydney.
“We have a supply shortage in NSW because of the prices being paid for milk,” he told the Forum.
“I think retailers need to be mindful of the fact China needs milk, too, and in quantities that are vast. If that market begins to take off, then farmers may well get better prices overseas than they do domestically. And where will that leave the retailers? No-one could blame farmers for getting the best price they can, especially after what has happened in the past few years.”
Supermarkets in Beijing sell Australian milk to Chinese customers. Source: Getty Images.
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Clint Sulway from Solgen Energy Group had good news on cutting costs, which he explained at the Forum.
“What we have seen during the past 10 years is a doubling of electricity prices and it has a direct impact on farmers. There has been a big shift away from traditional sources of energy such as coal and grid electricity to new technologies such as solar panels, batteries and LED lighting. These are energy-efficient solutions.
“At the same time, the market is becoming decentralised and everyone wants to take control of their costs. During the past 10 years, the price of milk has not really changed except for the recent price increase.
“In that environment taking control of your energy costs can be beneficial. Most dairy farmers who want control look at adding solar batteries to their technology. A battery stores the power generated from solar panels to allow it to be used when it suits you.
“An average battery costs about $15,000 at the moment but that depends on size and intended use. The good news is that during the next few years the price of battery energy storage is likely to come down as they become more popular. But the technology is ready now.”
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Colin Thompson signing off after a successful day.
Five success secrets of the top dairy farmers
Sheena Carter from Dairy NSW oversees management workshops for dairy farmers across the state. She and her team have identified the management skills of the dairy industry’s top 40% of producers, which she shared at the Forum.
“These farmers tend to be timely. They make decisions on a day-to-day basis. If they see a rain event coming then the fertiliser is in the shed and ready to go. If there is something they need to address, they don’t hang around and procrastinate and lose the opportunity, they address it.”
“They plan ahead. They have a plan A but they also have a plan B in case plan A goes belly up.”
- Risk management
“They have good risk management skills. They are disciplined with their expenditure. They exhibit good cost control.”
“They are not locked into a particular production system. If they need to change cow numbers, they can. And the changes can be quite dramatic depending on the circumstances.”
“They seek advice from others. This can be from other farmers they respect or consultants or industry representatives. It’s always good to get another set of eyes on your business, but they should be eyes you trust.”