Farmers disgusted as Lactalis announces a 5c/L drop in milk price

Dairy farmers in Queensland and northern NSW were caught off guard when Lactalis announced a 5c/L drop in milk price. The surprise soon turned to anger and many Lactalis suppliers have reached out to me expressing their disgust. Given the massive shortage of milk in Australia, especially in Queensland and NSW, this announcement makes no sense at all.

It appears to be a poorly thought-out strategy designed to suppress milk price. It is now likely that the strategy will backfire on Lactalis. It is incredibly unlikely that Bega, DFMC and Norco will follow suit and as such Lactalis is likely to lose a lot of milk to other processors from their bold strategy.

Everyone in the industry recognises that there is a massive shortage of milk and the loss of around 0.5 billion litres of milk in Australia in the past year demonstrates this clearly. Also, it is well understood that the cost of getting fresh milk into Queensland from Victoria is at least 10c/L more expensive than procuring milk from local farms in Queensland and northern NSW. So regardless of what is happening to milk price in Victoria, milk prices in the northern industry must go up this year.

What should Lactalis do? If they don’t want to lose at least 50ML of milk in Queensland and northern NSW, and perhaps closer to 100ML, they should immediately correct their mistake and remove the minus sign from their announcement. Anything less than a 5c/L increase will not quell the storm created by their announcement on Friday.

So, what should Lactalis suppliers do? Do not sit back and wait and hope for the best. To sit back and wait for things to unfold is an incredibly poor strategy and one that gives complete control to others. I strongly encourage all Lactalis suppliers speak to all other processors and be blunt about what price would get them to immediately sign a contract with another processor. Most dairy farmers would tell you that given cost increases, anything less than a 3c/L price increase is tokenistic and not worth signing a contract for. Many Lactalis suppliers have already told me this is what they are doing.

I strongly encourage dairy farmers, both Lactalis and other dairy farmers, that if a processor is prepared to offer a reasonable price increase on this year’s price, be proactive and sign a contract with then immediately. There is a 14-day cooling off period that farmers can take advantage of after signing a contract. So, if another processor offers a higher price and the processor you signed with won’t match, you can rescind the contract and sign with someone else.

Processors who are proactive and prepared to offer reasonable price increases early must be rewarded with farmers signing contracts. If they are not, why would they bother offering a reasonable price? The answer is they shouldn’t.

The power is in the hands of every dairy farmer. Take advantage of this and sign contracts this week if a decent price increase is offered.

Eric Danzi, CEO eastAUSmilk