South west Western Australia dairy processor Harvey Fresh is hoping a farm gate milk price increase and low-season bonuses will encourage farmers to produce more milk.
Harvey Fresh was taken over by Italian dairy company Parmalat ten weeks ago and Parmalat has expressed a desire to increase its export volume.
Harvey Fresh released its new supplier contracts on June 17 2014, which will run until December 2017.
The contracts outline a farm gate milk price increase of up to two cents per litre and the company will also offer cash incentives for farmers to supply excess milk during the traditionally quiet summer months for WA dairy, January to May.
For the 2015 summer season Harvey Fresh will offer 30 cents per litre, in 2016 it will be 25 cents per litre and in 2017 it will be 20 cents per litre, for excess production.
The contract will also standardise its quality benchmark, so a farmer can get a Grade One milk price, based on a total Standard Plate Count that is less than 20,000.
Harvey Fresh general manager Paul Lorimer says the company wants to ‘send out some clear messages’ about growing volume.
“We need a lot.
“We’ve got strong growth desire, particularly in the Asian market.”
Harvey Fresh currently processes 125 million litres of milk a year and aims to export 30 million litres overseas over the next three years.
Dairy producers welcome price incentives but many are still after a longer-term commitment from processors before they expand.
“I see it as a move in the right direction,” said Dale Hanks, a dairy farmer based in Harvey in the state’s south west.
He runs around 300 cows and supplies Harvey Fresh with between 2.4 and 2.5 million litres of milk each year.
“I fail to see that it’s gone far enough but it’s a start anyway,” Mr Hanks said.
“I’d like to see the money go onto the base price so that every litre of milk we produce we actually get paid a decent return, not just on the future growth in the summer period.
“It sounds like a lot of money but when you actually put it across all your milk for the whole year it’s not that much.”
After having a good look at the new Harvey Fresh price model, dairy consultant Steve Hossen describes it as ‘meaningful’.
“The devil is always in the detail,” he said.
“Summer premiums have been too small for too long so there’s been a bit of a sickness, if that makes sense, in the past and at least these guys have acknowledged supply and demand has been grossly out of whack.
“It’ll be a beautiful thing if it comes off.”
There is fierce competition in WA for a limited supply of milk between the three main players Harvey Fresh, Brownes and Lion.
Ben Purcell is Managing Director of Brownes.
He believes it’s positive step but questions what’s in it for those farmers that are struggling to get by.
“In the last three years we’ve led the farm-gate increases across the entire milk price.
“This incentive is no more than we’ve achieved in the last three years, it’s just nicely put together to achieve what the processor needs and it’s questionable what it would do for an average farmer.
“I don’t think it’s going to cost Parmalat very much money because most farmers aren’t in a position where they’re going to grow.
“So what they’ll get is fantastic bang for their buck and I can see why they’ve done it but it’s not necessarily the way we’d go about it.”