TEN years after industry deregulation, NSW dairy farmers are concerned a new two-tiered pricing deal offered to them is effectively a cheap new-look quota system.
Members of the Dairy Farmers Milk Co-operative (DFMC) agreed to sell their iconic brand for $910 million two years ago to National Foods, which controls 81 per cent of the domestic drinking milk market in Australia and is among the five major processors.
Contracts between DFMC members and National Foods came up for renewal from July 1 this year, and farmers have been offered a two-tiered price – a premium price of around 47 cents per litre for premium Tier I (T1) milk and about 25 cents per litre for surplus Tier 2 (T2) milk, beyond their contract allocation.
Although deregulation resulted in fewer farms with larger herd numbers and the industry, squeezed by tight supplier margins, is recognised as being among the most efficient in the world, it now produces too much milk.
National Foods corporate affairs manager, Geoff Lynch, said the old price was weighted to reflect the discrepancy between T1 milk and T2 milk, with the latter used for manufacturing dairy products, but the new two-tiered system was more transparent and would encourage farmers toward new efficiencies.
“We buy as much milk as the farmers produce – some of it we don’t have a market for, but the farmers produce it and we don’t expect them to tip it down the drain,” Mr Lynch said.
“It is exported as skim milk powder and there is no margin in it for National Foods.
“In the past, we have blended the price. It was a weighted average.
“Now farmers get a specific amount for the milk we want.”
Prices vary depending on the length of the contract and incentives for higher fat and protein content and other factors.
DFMC chairman, Ian Zandstra, said the two-tiered pricing was not similar to the old quota system, saying it was a “supply/volume management system” and that if DFMC was still processing the milk, instead of selling it to National Foods, it would go down the same path.
“Farmers accept there is a correction needed in the market, but it will be a difficult adjustment for some and there will be different outcomes,” Mr Zandstra said.
Hunter Valley dairy farmer, Phil Cox, “Halscott”, Aberdeen, is among those worried about their future.
Asked if be believed the new pricing structure was a return to the old quota system, Mr Cox said, “Too right it is, but if we want to sell our milk we have no choice”.
He said the tiered system would have a “dramatic” impact on his farming operation.
“It will be an uncertain couple of years. People will always want milk, but we are producing too much of it. Maybe our co-op needs to get together and find more buyers, smaller buyers,” Mr Cox said, adding that after battling through drought with his wife, Stacey, he felt “let down” by the changes.
NSW Farmers Dairy Committee spokesman, Adrian Drury, agreed that exploring new markets was the right direction to look in, but said he believed DFMC members were locked into supply agreements with National Foods.
“There is a concern this has devalued the NSW industry, with most farmers receiving less for their product than what Victoria’s export price will be – they have shifted their manufacturing base down south since buying out Dairy Farmers and we are effectively paying for freight for our product,” Mr Drury said.
Read the University of Sydney Dairy Research Foundation Symposium report in The Land next week.
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