Milk: ‘Wonder Food’ much undersold - Dairy Connect

Fresh liquid milk is a premium quality, short shelf-life food of immense nutritional value that should command a price well above that of branded bottled tap water, advocacy body Dairy Connect told a Senate inquiry into the industry’s woes this
week.

Instability in Australia’s dairy industry was being driven primarily by unfair standard form contracts* between processors and producers that could allow it to be impossible for dairy farmers to obtain a fair deal, according to Dairy Connect.

The advocacy body also described retail $1 a litre home brand milk as a symptom of the dairy crisis rather than a cause.

In a written submission, CEO Shaughn Morgan told the inquiry that the major focus of Dairy Connect was concern over the low prices being paid to dairy farmers arising from terms and conditions in standard form milk supply contracts.

“Australian farmers are being forced into selling their milk for prices that fall significantly short of operating costs and this is disastrous for the industry for obvious reasons,” he said.

“Economically, this is accelerating the incidence of rural and regional unemployment nationally as small-scale family farmers are being squeezed out of the market. This also has a negative impact on their mental health.

“Dairy Connect doesn’t see any increase in future milk prices as a subsidy.

“It is simply an acknowledgement that a high quality, short shelf-life food of immense nutritional value should command a price above its cost of production and certainly above the price of a bottle of branded water.”

Dairy Connect said exclusivity clauses in these standard form contracts between processors and producers created a heavily one-sided power position for dairy processors across Australia.

“In some instances, such agreements may be considered unconscionable,” Shaughn Morgan said.

“Many of these contracts do not specify prices. This allows processors to vary farm-gate payments at will, even clawing back money previously paid as evidenced by Murray Goulburn and Fonterra’s treatment of producers in April.

“While not always the case, the typically long-term nature of contracts adds to dairy farmers’ burdens, removing their ability to influence industry outcomes or to try to adapt to changing market supply and demand conditions globally.

“Dairy Connect believes the duration and flexibility of future milk supply contracts should be subject to as much scrutiny and examination as farm-gate prices.

“Only through an investigation into the entire nature of dairy supply agreements will a mutually beneficial outcome be reached.”

Collective bargaining and the quality of milk testing should also be included in recommendations from the dairy industry inquiry for consideration by the Commonwealth Government, according to Dairy Connect.

“Collective bargaining would allow producers to cooperate in negotiating commercial price payments with processors,” the Dairy Connect submission said.

“Collective bargaining may also provide a safety net for dairy producers to act in a consistent and proactive manner in their discussions with processors.

“This is particularly so where the opportunity to act as a group may encourage a ‘level playing field’ in discussions with processors.

“Farm-gate milk prices are based on fat and protein content and safety and quality parameters including somatic cells and microbiological tests.

“These milk quality tests are conducted or arranged by processors, and dairy farmers have expressed concern about their consistency & reliability, and about how processors operate the milk payments based on test results.

“Tests should be conducted in a manner commensurate with consistency, openness and transparency.”

* The Australian Competition and Consumer Commission on Saturday began enforcing a new standard form contract law that applied to agreements where an upfront price payable was no more than $300,000 or, if a contract was for more than 12 months, $1 million.