Has the dust settled on the milk supply contracts?

There has been a real frenzy of activity across Australia in the past month with all processors attempting to secure milk. Milk production is down across Australia and all processors are short of milk. There have been daily announcements re milk price increases, and this may continue in early July.

In Queensland, the last price increase announcement was by Bega (and DFMC) on 1 July although many are unaware of this. Of the 3 major processors Bega (and DFMC), Lactalis and Norco it would appear that Bega (and DFMC) are now on average paying the most for milk at over 88c/L. Lactalis is around 1c behind and Norco probably 2-3c behind on average.

However, averages mean very little and as I have mentioned continuously over the past few months every farmer coming off contract need to get income estimates with the same realistic assumptions off all processors to see who is paying the most for their farm.

There are still likely to be some farmers who change process during July. Some will exercise their 14-day cooling off period as processors continue to change prices. And some farmers will utilise the ability to supply uncontracted for 30 days before making a final decision.

So, as it stands now, how many farmers will change processor in Queensland this year? At least 10 farms will and probably closer to 15. This probably only represents about 10% of all farmers in southern Queensland who are off contract and can move processor. Although this is not insignificant, it is a disappointing outcome since many other farmers would be able to get a higher price by changing processors but for whatever reason have chosen not to do so.

If you haven’t checked your price with other processors, please do so today. Even if you have signed a contract, if it was within the last 14 days you can get out of that contract to sign with someone else paying a higher price, so it is not too late.

Eric Danzi, Co-CEO eastAUSmilk

Consider all milk contracts before signing

Milk processors are required to release their new milk contracts by 1 June. There has been a lot of discussion regarding these announcements and an expectation of a significant increase in milk prices given the increase in production costs, shortage of milk and ability for retail milk price to increase in response to cost increases.

Dairy farmers are in a very strong bargaining position and should utilise this to gain the maximum increase in milk price. This is a fork in the road moment for a lot of dairy farmers deciding whether they should stay in the industry or not. So no time is more critical to gain the highest price possible.

I urge all dairy farmers not to be rushed and explore your options with all processors before signing a contract. Given the milk shortages and cost increase, farmers should expect at least an additional 10c/L. Do not consider signing any contract with less than a 10c/L increase and without exploring all options.

The prices when announced are a weighted average only so you should request an income estimate for your individual milk supply. Be honest and realistic when providing the volume and milk quality parameters for the estimate so it can be as accurate as possible for you to consider.

Please let all your dairy farmer friends know of what they should expect and ensure they also shop around before signing a contract. Also be aware that if you sign a contract that you regret, you have a 14 day cooling off period where you can terminate your contract.

The ACCC has updated its guidance on some key elements of the Dairy Code. The updates provide more detail on the ACCC’s interpretation of the code’s ‘single document’ requirement, arrangements for cooperatives and collective bargaining groups, what constitutes a ‘material breach’, loyalty payments and other bonuses, and the requirement to publish dispute reports.

Eric Danzi – eastAUSmilk Co-CEO