28 August, 2016

Dairy Crisis

I have followed the dairy industry crisis with horror and sympathy for the farmer's who are being asked to refund monies they have been paid, because the processors got it wrong and apparently their contracts allow the processors to recover retrospectively. In other words the farmers carry the price risks for the processors.
One can understand how such a situation arose, given the fact that the processors were (mostly) originally farmer owned co-operatives. I have long been sceptical of the co-operative model where it has so often seemed that there is conflict between how farmer shareholders should be rewarded-by way of dividends or through the commodity price. I have long been attracted to farm gate competition. I also had experience in chairing a flood relief fund for the cotton industry where a major seed supplier was prepared to make a relieving gesture to cotton growers by way of a payment to a representative grower body rather than direct to cotton growers. With the co-operation of growers we developed a formula to distribute the funds, this proved highly successful in rewarding those most affected by floods without criticism from those who missed out.

I developed an idea that as farmers seem to have the sympathy of consumers and the processors and retailers (supermarkets) are seen as villains, there may be a way by which all parties can benefit in public relations terms and economic terms. Furthermore, it would not require any Government involvement. I put the proposal to a number of parties all of whom responded with a significant lack of enthusiasm! The most recent (17th August) advocacy was to Barnaby Joyce the Federal Minister for Agriculture and Water, in the following terms-

Dear Barnaby,
The Four Corners programme on Monday night for once got it pretty right. I wrote the following back in May. I still believe that something along these lines could be done. It would cost the Government nothing. With the supermarkets and processors under so much pressure I believe they would be responsive.
"Dairy Crisis
I have followed the Murray Goulburn/ Fonterra milk issue closely. How extraordinary that the processors would actually pay farmers a price more than they were recovering, with a price volatile commodity and have the ability to recover from the farmers. The processors have effectively left the full price risk with the farmers.

I acknowledge  the significance of the dominant exports. However, I do believe that there is an opportunity for the much criticised Australian supermarkets and the milk processors, to win some really valuable goodwill by offering a brand with a 25c per litre (50c per 2 litre bottle) loading, widely publicised. The loading would be directly payable on some clever formula basis, to dairy farmers. Some years ago a similar thing was done following a flood in the cotton industry with the bulk payments made to a farmer representative industry body who distributed in full to those most impacted, on an agreed formula.

The scheme would be entirely voluntary, with no Government involvement. It is no fault of most farmers, other than the Co-op Directors, that they have been caught in this squeeze. As I assess it, they currently have the sympathy of Australian consumers. But they need to act quickly whilst the issue is topical.

Branded milk products are selling strongly, clearly demonstrating the sympathy factor. The purchase of branded milk helps, but it seems to me that more could be done. "


For what it's worth I pass it on.
Regards,
David

The email did not elicit a reply, however I read in The Weekend Australian yesterday that Coles are now to introduce just such a scheme. If this proves to be correct, and it proves successful, then Woolworths and IPA would surely follow.

I seek no attribution, but would be delighted if such assistance is well supported by consumers. I only see it as a short term palliative and longer term, farmers need to have stronger competitive contracts with processors with the co-operative relationship ethos consigned to the dustbin.
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