Issues of trust in dairy processors still plague the industry, despite more positive price signals moving into the new season.
It has been more than a year since Murray Goulburn and Fonterra, the now defunct National Dairy Products and Lion — for a portion of its suppliers — slashed farmgate milk incomes.
But as only 45 per cent of dairy farmers anticipate a profit this season, down from 64 per cent last season, the financial pain from the past — caused by price cuts after a dry season — still lingers.
In Dairy Australia’s Situation and Outlook report, released today, is the National Dairy Farmer Survey of 1000 farmers.
It reveals profitability is at a three-year low and a record number of producers, 27 per cent, either have or would like to swap milk processors.
Dairy Australian analyst John Droppert said 10 per cent of NDFS respondents had changed the milk company they supplied. That is double the movement recorded in the survey two years ago.
“Generally it has been low to mid-single digits,” Mr Droppert said of those who swapped processors.
“In the ‘16 survey (2015-16) it was higher than usual and then this time it was higher again.”
A further 17 per cent of survey respondents said they would like to change their milk processor, 9 per cent are considering it, but 8 per cent would like to change but are unable to. This is the first time the question about not being able to move has been asked.
Farms with herds greater than 700 cows were the most likely to have changed milk processor or considering a change, according to the survey.
Historically, dairy farmers have remained loyal to their processors, with 61 per cent of respondents saying they had stayed with the one supplier for the past decade.
“In the past, the reason for change has almost always been milk price,” Mr Droppert said. “Two-thirds changed on the basis of price in 2015-16, but farmer concerns are now about their relationship and how they have been treated and they make decisions on that, not just price.”
This year, 21 per cent of respondents said supplier management and treatment of farmers was the reason they wanted to, or had swapped processors, while 12 per cent were concerned about the clawback and 8 per cent lacked trust in their processor and felt the processor had not been honest.
The NDFS was conducted in February and March, at the time 53 per cent of farmers were positive about the future of the industry. This was down from 67 per cent a year earlier.
The decline in positivity was widespread, but particularly apparent in western Victoria, Gippsland, NSW and Tasmania, and mostly among small herd sizes.
Historically, there was a strong correlation between prices and sentiment, according to Dairy Australia. Prices accounted for more than 80 per cent of the variability in farmer positivity about the future.
The NDFS showed 70 per cent were expecting this season’s profits to be lower than the average of the past five years. Farmers milking more than 500 cows were most likely to make a profit, but the level of profit would be lower.
Farmers told Dairy Australia they had responded to the “industry crisis” in a number of ways including:
United Dairyfarmers of Victoria president Adam Jenkins said industry confidence was a challenge and trust would take time to rebuild.
“More than ever I think people will do budgets and shop around looking for what sort of price suits their farms,” he said. “But we caution people to make sure they are going through their numbers and ensuring that (the processor) adheres to the code of practice, that they are very transparent.”
Mr Jenkins said last season’s high cull levels meant production was down on farm.
“On the flip-side the low amount of milk means farmgate competition is going to be very, very strong, which is a positive.
It is only early days yet and the long-term outlook for demand and supply is pretty strong.”
He said a “kind season” so far has helped lift confidence levels, but farmers remained cautious about growing because of recent price cuts and also with the looming threat of a drier season.
Dairy Australia is predicting milk production to grow 2 to 3 per cent in the 2017-18 season due to “improving market settings and favourable seasonal outlook”.
Source: The Weekly Times