Farmer fury
DAIRY farmers are outraged by cooperative Murray Goulburn’s (MG) dismal opening price, saying the payment is below the cost of production and will cost MG suppliers.
MG revealed an opening price of $4.70 per kilogram of milk solids (kg/MS), well below Bega Cheese’s price of $5.50kg/MS and Burra Foods’ up to $5.25kg/MS announced on Friday.
Warrnambool Cheese and Butter announced an average milk price for 2017-18 of $5.50kg/MS.
MG farmers are also incensed by the prospect of prices falling further, with MG specifying their forecast full year price is contingent on milk supply of at least 2.5 billion litres and other assumptions.
The dairy crisis has already hurt the economy of dairying communities such as South Gippsland and any further cuts would be devastating.
After the announcement, MG CEO Ari Mervis apologised after telling ABC Radio the opening price “should be well above the cost of production”, blaming his poor choice of words.
Gippsland-based consultant John Mulvany said MG’s opening price announcement could spell disaster for South Gippsland farmers.
He said if the southern milk region weighted average price is $4.70kg/MS, then a lot of Gippsland farmers would actually be receiving around 30 cents below that.
“That would be a disaster on top of 2016-17,” he said.
Mr Mulvany described MG’s 2017-18 full year price as “a particularly bullish prediction”.
“We have to apply same principal to the closing price. The corruption of the MG payment system means a lot of local farmers would actually finish at $5.10kg/MS,” he said.
He said while dairy farmers know the milk price goes up and down, after two difficult seasons MG suppliers won’t have the capacity to catch up.
“This will again test the spirits and the mettle of dairy farmers supplying Murray Goulburn,” he said.
“For an individual farmer, anything below $5kg/MS creates pain. Anything around $4.50kg/MS or less is verging on catastrophe.
“Quite a lot of farmers that supply MG have finance with MG and therefore can’t leave.”
Leongatha North MG supplier Bernhard Lubitz said the company’s opening price was disappointing especially considering Bega Cheese opened at $5.50kg/MS.
Mr Lubitz said it seemed MG was “doomed to repeat” mistakes of the previous season, when it opened with an ultra conservative milk price.
He said $4.70kg/MS was not viable for dairy farmers, particularly following on from the last two poor years.
“It is way below the real cost of production. Bega has opened exactly where the export index said it should regarding next year’s market expectation,” he said.
Mr Lubitz said the most disturbing part of MG’s announcement is that it states quite clearly if milk intake falls below 2.5 billion litres “all bets are off”.
“Then they have the absolute gall to put the success or failure to deliver these milk prices squarely at the feet of farmers, saying that if you leave, don’t blame us for not delivering on this,” he said.
“This strategy is designed to fail at a $4.70kg/MS opening price. It cannot do anything but fail when milk supply leaves…there is nothing here to convince farmers to stay.
“This is not a positive or forward looking announcement.”
Mr Lubitz said a lot had changed in the last 20 years with milk pricing structure and its profitability and the level of farmer indebtedness.
“In short, farmers no longer have the ability to be the MG financial lifeboat as was the case 20 years ago,” he said.
United Dairyfarmers of Victoria welcomed the “transparency and honesty” of the company’s early announcement, however acknowledged the price was unsustainable.
“We recognise MG is in a challenging situation trying to navigate its way from the past into the future, but a $4.70kg/MS opening price presents a serious challenge for dairy farmers who are still recovering from the events of last year,” UDV president Adam Jenkins said.
In a letter to farmers on Friday, Burra Foods chief executive officer Grant Crothers noted his company’s price range was a 23 percent increase on the previous year and was inclusive of the recently announced $0.40/kg milk solids commitment bonus that will be paid upfront to suppliers in July 2017.
Mr Crothers said Burra Foods continues to invest heavily in capacity at its main processing site in Korumburra and is wanting to see a growth of existing suppliers complemented by new suppliers.
“After recently spending time in market, I am very optimistic about our ability to respond to increasing demands and maintain our ability to pay a price premium to our milk supply partners,” he said.
“We are confident that depressed dairy prices are behind us and it is satisfying to be able to provide a strong opening price.
“We remain confident in our ability to capture growing demand for the Burra product range. This opening price, combined with our commitment bonus initiative reflects our resolve to build a sustainable supply chain and put our supply partners in a stronger position to manage their business.”
MG, the country’s largest milk processor, was the first to announce opening price for the 2017-18 season, which starts on July 1.
MG’s forecast full year farmgate price is in the range of $5.20kg/MS to $5.40kg/MS and is dependent on several factors, including an annual milk intake of 2.5 billion litres.
The company also announced a comprehensive strategic review which will consider both strategy and corporate structure.
Not happy: Leongatha North Murray Goulburn supplier Bernhard Lubitz said the company will lose suppliers after it announced an opening price of $4.70 per kilogram of milk solids last week.
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Posted by Tayla Kershaw on Jun 14 2017. Filed under Featured, News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry
