From the Experts

Southern pricing structure must be changed to promote growth

By Dairy News

DOES MURRAY Goulburn really still have 1.9 billion litres of milk from suppliers? That number is being used quite a lot.

Fonterra think they can spend $100 million and gain another 500 million litres; Saputo wants its 800 million litres back; ACM is putting a new plant and wants 200 million litres; Freedom Foods wants 200 million litres and UDC wants more milk, not to mention Burra.

I don’t know where it will all come from — some magic milk bucket?

The pricing structure from Saputo, Fonterra and most other processors is not growth orientated and has to change.

Saputo has said it now wants to desperately gain and dominate the Australian domestic market in the first instance.

It’s what it does best, with the rest exported.

The problem is, when Saputo gets control of MG, it will put both Saputo and Fonterra back in the same position they held for the last 15 years, at a Mexican standoff regarding the southern milk pool, and its efficiency and the ability to grow it at the 2–3 per cent they are hoping for.

Unless they all change their pricing to not cannibalise the spring (call it the seasonal calving /none flat milk curve) nothing will change.

They will just go on with the same farcical merry-go-round of pinching supply from each other. The only bright spot is that Saputo has said no more special price deals, everyone gets paid the same.

Now finally Michael Harvey from Rabobank is finally saying the same — that trying to create a flatter peak to trough milk production ratio has done nothing more than add costs and inefficiency to both the processing and farm production systems.

The southern milk pool needs $6 kg/MS to grow, along with a flat milk pricing payment system.

They are collectively looking for another 1.8 billion litres and are putting in more new stainless steel to process it.

We have spare and idle capacity now, making Australia highly inefficient at milk processing with a high cost structure. We do not need more. It’s madness. There seems to be no co-ordinated approach from our industry leaders in all this.

First, we need to fix the milk pricing structure of the southern milk pool, which was once the powerhouse and engine room of the Australian industry, so it once again has a lower cost structure and is highly efficient and resilient to the commodity price cycles we have to deal with and in a position to grow its milk volume over time.

We have to stop putting the cart before the horse. Who will now be the voice of reason in all of this? Who will step up to the challenge to be the new farmers’ champion (if we ever had one) — Saputo, Fonterra or our industry leaders?

• Bernhard Lubitz is a dairy farmer from Leongatha.