Milk prices and dairy code

Now we are into January, everyone in the dairy industry will start to focus on what will happen to milk prices in July. The dairy code requires processors to publish preliminary prices and contracts by 1 June and some will make announcements well before then. And speculation will increase in the coming months as both farmers and processors try to feel out what will happen.

There has been a lot of complaining by some processors and processor representatives about the dairy code and milk prices. Some media commentators, claiming to present a professional view, have simply repeated the views of some processors and their representatives.

They claim the Dairy Industry Code is distorting the market and forcing farmgate prices too high. That’s simply not true.

The Dairy Industry Code has corrected some of the market failures in the dairy industry and gone some way to ensuring farmgate prices reflect competition for milk. That is about supply and demand for milk across Australia and within each different region. When the supply of milk reduces, as it has so significantly in recent years because of significant cost increases, the price would logically go up. Processors willing and able to pay more will attract milk. Those not willing to pay more lose milk to their competitors and will face a shrinking business. It’s all pretty simple, really. Some in the industry don’t seem to understand these economic basics, although most farmers do.

What would happen if some processors, and the media who parrots their views, got their way and milk prices fell by $2/kg or around 15c/L?

Disaster! There would be absolute carnage and milk production would probably halve across Australia in a few years. Is that the outcome that some processors want, or do they think farmers are magicians and can continue to produce milk while losing money?

Like it or not, the Australian dairy industry has contracted massively over recent decades, as a result of income being stripped from farmers. It is now an industry largely focussed on domestic demand and increasingly on domestic fresh milk. It is time for all to recognise this and stop living in the past.

Eric Danzi, CEO eastAUSmilk