New model removes complexity, shares wealth

By Stephen Cooke

A NEW milk price model aims to remove the complexity of the current contracts and provide a more even share of money across all farms, regardless of system or size.

The model was overseen by consultant John Mulvany for the United Dairyfarmers of Victoria, who have gained consensus from farmers on a roadshow through Victoria.

They will use it as a lead for discussions with processors in a bid to have a more equitable system installed.

The UDV says pricing systems in use today push farmers into risk taking behaviour, forcing inefficiency into farming systems and making it difficult to understand how milk payments are calculated.

It says this erodes profitability on farm, and ultimately the industry. At the heart of the change is removing elements in current contracts that lead farmers to stop producing milk at the most profitable time, when feed is cheap.

Consultant Phil Shannon presented the initiative to farmers at a series of meetings in northern Victoria last month.

“If a milk pricing system encourages you to use more feed, it affects your cost efficiencies. That hurts factory efficiencies,” Mr Shannon said.

“Milk incentives sway decisions away from natural farming and the lowest cost of production.

“Changing patterns of when you supply milk may gain you 20–50c/kg MS or $200/cow. If you pay more than that, you lose.”

The proposal states that high cost production systems precludes the next generation of farmers from entering the industry, as farms are more expensive to purchase and run.

“Farmers need to match natural resources to produce milk,” Mr Shannon said.

“Seasonal calving means calving and producing milk at a time to use natural resources efficiently. This is the foundation of a world export competitive industry.”

“There are hundreds of low risk seasonal calving farms throughout Victoria, all with individual milk production patterns. The solution is to go back to what we did.

“If we don’t do something to gain competitiveness on the world market, what will we leave our kids?

“If we don’t pull together and work with processors, we head down a slippery path.

“Farmers have responded to factories, and raised their COP, meaning factories have to pay more and lose our competiveness.”

The report says payment variation across farms is 90c/kg MS, which equates to 67 per cent profit variability across farms. It is farmers entering the industry that are paid the lowest.

The report is adamant in removing ‘linked months’, known also as SRP payments, from the contracts. These mean farmers producing a certain percentage in spring need to produce a certain percentage in a later month.

The report says these payments can cost farmers for producing too much milk in spring. Farmers will either reduce production in spring, when it’s cheapest to produce feed, or make poor decisions in ‘linked months’ to catch up.

The UDV believes removing ‘linked months’ will lead to more profitable decisions being made regarding periods in which to produce milk.