MILK PAYMENT structures are too complex. Enough is enough.
UDV has now presented a simplified milk price structure model to hundreds of farmers and industry representatives across the state and the feedback has been unanimous — structures need to be simplified and the time for change is now. It is time for processors to hear the call of industry and act.
Processors have put in place a set of practices and pricing components that are working against their suppliers. Complexity, a lack of transparency and incentives that push farmers to take additional risk are all being used to hold supply.
A simplified structure can address farming system inefficiencies and confusion around complicated milk payment calculations. We need a payment system that allows us to maximise our comparative advantage; systems that encourage farmers to produce milk efficiently and at a time to suit their natural resources whilst acknowledging the requirements of the processor.
It is clear that the current payment systems do not enable or encourage the best farm management decisions, instead increasing production costs, resulting in demand for a higher milk price to create a margin — a downward spiral for processors, farmers and industry.
To make matters worse, those with the least milk price bargaining power are those new to the industry. Young and other new farmers with lower volumes and not yet recognized as a reliable supplier of quality milk end up with lower prices, putting them under higher financial strain. These are the very people we need for our future.
It is ludicrous for some dairy farmers and processors to say that they are genuinely interested in the future of the industry, when a young dairy farmer building production capability also has to be 25 per cent better at generating profit than his neighbour, simply because of farm size and production volume.
Simple payment systems are possible. They have been used in the past and there are examples of passable systems in use today, but their adoption requires agreement from all stakeholders.
That is why it is important that dairy farmers let their processor staff, consultants and fellow farmers know that they want a simpler system. This includes making changes such as:
An “A + B – C” approach to pricing — Simplifying the structure by removing the unnecessary pricing components and focusing on milk components minus a volume charge. The majority of price variability comes from additional incentives and charges.
Letting farmers manage their own feed regimes by using a simplified seasonal differential, with only two prices for peak and off peak production and without shoulder season incentives.
Letting farmers calve their herd when it best suits them with the removal of linkage of production in peak and off-peak seasons.
Reducing price variation between farmers to ensure new/young farmers are getting a fairer price for their milk by capping productivity bonuses.
Letting farmers know how far they may be from the reported price by reporting a median price (meaning an equal number of payments are made above and below the price reported) and an expected price variation between all their suppliers.
A simplified milk price structure will let farmers find efficient production by giving individuals flexibility of farm management. This would result in more milk at lower cost — good for farmers and good for processors. Without it we will likely see the industry dwindle to nothing as new and existing farmers expose themselves to greater risk and wash out.
Together we need to tackle a crippling issue for this industry. Change cannot be the effort of a few. Industry needs consensus. Industry needs everyone to work towards the desired outcomes, together.
Go to www.FairPayments4Dairy.com for more.
• Adam Jenkins is President of the United Dairyfarmers of Victoria.