04/07/2012 - 10:14

Milk price increase not enough, Brownes

04/07/2012 - 10:14

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Milk price increase not enough, Brownes

THE state’s dairy farmers have received some belated good news, with all processors having increased the price they pay for milk; but Brownes’ chief executive Ben Purcell says it’s not enough to ensure the industry’s viability.

The company was the first of the state’s three processors to increase its farm gate price paid to farmers this year, announcing in April it would bring prices up about 5 per cent to an average 43 cents per litre of milk.

Both Lion – which was created after a merger with National Foods in 2009 – and Harvey Fresh have now followed suit, citing farmers’ increasingly difficult business conditions as the reason they’re prepared to pay more for their product.

Farmers have long claimed their tight profit margins are a result of the toughest retail conditions in the industry’s history, with Coles’ $1 per litre of milk campaign launched in 2010 a major contributor.

It meant processors were paid less for their goods, and thus forced to reduce what they could pay farmers.

Mr Purcell told WA Business News more farmers were leaving the industry because of those pressures, alongside increasing costs of production, and it was jeopardising the future of Western Australia’s dairy industry.

“Heifer prices are high so farmers are looking to sell their herds to bolster their own near-term cash,” he said.

The company stepped in to stop such a sale of 3,200 cows earlier this year, instead buying the herd itself from corporate diary producer Lactanz to prevent them being sold to overseas buyers.  

It’s still negotiating the finer details of the sale with the New Zealand-based company, and is intending to hold ownership of the cows as a transitional arrangement before selling them on to some of its current farmer-suppliers.

Mr Purcell said Brownes had no intention of becoming both supplier and processor, as farming was “an art form, not a science”.

However, the exit of that herd of cows from the WA industry would have had such a detrimental impact on the industry that Brownes felt it necessary to step in.

About 11 of the company’s current supplying farmers have expressed interest in buying some of the herd.

Lion has also been struggling with securing adequate supply and was forced to truck 150,000L of milk from South Australia earlier this year to fill the shortage.

In announcing its farm gate increase of 1 cent per litre of milk last week, agriculture procurement director Murray Jeffrey said Lion was still considering how to further support the industry.

“We realise our farmers are doing it tough and need support right now,” he said.

“A number of factors have continued to impact on (their) business. These include recovery from the drought, which has affected capacity to build herd numbers, and the collapse of Challenge Dairy.” 

While the situation had improved, Mr Purcell said farmers were still struggling.

“Supply is down because of very tough retail conditions in the marketplace. The manufacturers and processors have not achieved the type of price realisation that they need to achieve to be able to pass back to farmers,” he said.

Farmers say the farm gate prices paid are still below their cost of production, and Brownes is negotiating with retailers to get better prices for their goods.

He said the future of WA’s dairy industry would remain precarious unless better prices were achieved.

“What’s concerning is farmers who have had several generations of being dairy farmers are not necessarily encouraging their children to get into it ... we’re worried that it doesn’t provide enough of a living for the children to want to take it on,” Mr Purcell said.

He said the only way to ease the situation was for retailers to have more understanding of the pressures their low-cost milk prices put on the whole supply chain.

Coles has now agreed to pay Harvey Fresh more for its private label and branded milk – up an average of 3.3c/L. That prompted Harvey Fresh to pass on the increase to farmers in higher farm gate prices.

But Mr Purcell said more work was needed to ensure a sustainable industry in the longer term.

“Collectively, suppliers need to explain themselves and the situation a bit better to retailers,” he said. 

“You can’t turn up and have a whinge about the cost base going up because their cost base is going up as well.”

Mr Purcell said Brownes had been negotiating with all the major retailers and had received good responses.

“There are some positive signs but they’re not achieved by sitting back and waiting for the market to become positive … the positive news is a consequence of us working hard and cultivating opportunities,” he said.

 

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