Saputo opening milk price disappoints

20 Jun, 2018 10:17 AM
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There is a need for money now to invest in suppliers, who provide the lifeblood of the factories.

Canadian dairy giant Saputo has announced an opening average milk price for its Warrnambool Cheese and Butter (WCB) and former Murray Goulburn (MG) suppliers of $5.75 a kilogram/MilkSolids.

In April, MG’s farmer shareholders voted to sell the co-op’s seven factories and related assets and liabilities, including the powerful Devondale brand, to Saputo.

In a letter to suppliers, Saputo Dairy Australia chief operating officer Kai Bockmann said the price would apply to southern milk region suppliers.

“This opening price represents our current assessment of expected market conditions for the coming year,” Mr Bockmann said.

“We believe it is responsible and allows room for upward movements if improved market conditions are realised throughout the year.”

Improved conditions

Mr Bockmann said export market conditions had continued to improve in recent months.

But the closing average price for the coming season would depend on many external factors, which might have an impact on returns.

“We will monitor market conditions as the season unfolds and update you as part of our quarterly milk price review process in October, January, April and June,” Mr Bockmann said.

The company said it would continue to operate with separate handbooks for Saputo and WCB suppliers, with “no major changes to current terms and conditions”.

“We intend to fully combine our SDA and WCB supply groups from July 1, 2019, and provide an integrated range of pricing programs under one handbook,” Mr Bockmann said.

“In this transition year and to ensure that no supplier is disadvantaged, we will provide every supplier with the best available milk price at the end of the 2018/19 season.

“Simply put, this means suppliers will receive the highest price available to them based on both the WCB and SDA milk payment systems.

“This will ensure that all suppliers are paid the best available price at the end of the season regardless of their payment option during the year.”

Mr Bockmann said the reconciliation would take place at the end of the season, with a top-up payment made, if required.

“The milk price commitment made to former MG suppliers to pay at least the equivalent price to the largest two processors in the Southern Milk Region extends to all SDA suppliers,” he said.

Farmer disappointment

But farmers have expressed disappointment with the opening milk price.

Leighton Hart, Dean’s Marsh, Vic, who supplies Warrnambool Cheese and Butter from his 550-cow herd, said a higher opening price could have instilled confidence in the sector.

“It highlights the disconnect between the processor and the farmgate,” Mr Hart said.

He said, in isolation, the price looked good.

“It’s the average price," he said.

“We have to remember that a lot of suppliers will be well below that, if you look at it over the whole year.

“We have just come through one of the most horrendous summers we have experience for a long time, and farmers' cash flow is being stretched.”

Closing price

Mr Hart said he had bought in feed because of the late autumn break.

“My gripe with the opening price is obviously it will be a bit more later on but why not put that bit extra into the opening price to help farmers with cash flow," he said.

Mr Hart was also critical of the decision not to announce a closing price.

“We are running a business where, every month, we are forecasting what we can spend in capital investment,” Mr Hart said.

“If you don’t know where you are heading, how can you make any investment into your business with confidence?”

He said he understood Saputo was trying to pay as much as it could.

“But I think when they know you can pay a little more later in the year, why not have a look at that now?" he said.

“There is a need for money now to invest in suppliers, who provide the lifeblood of the factories.”

Confidence boost needed

Timboon Warrnambool Cheese and Butter supplier Nick Renyard, who has a herd of 550 cows, also expressed disappointment with the opening price.

“Saputo had a real opportunity to show some leadership and lift confidence,” Mr Renyard said.

“This announcement does not do that, I’m quite disappointed.”

Macarthur, Vic, dairyfarmer Craig Dettling, who has a herd of 180, said suppliers would be “crazy” not to compare prices, offered by other suppliers.

He said each producer must determine whether the price fitted with farm production system they were operating.

“The price is in the ballpark,” Mr Dettling said.

“Globally, conditions look good and there is potential for more upside.”

But he said there was scepticism as to whether or not it would be passed through to farmers.

“It comes down to how much each factory wants milk – there is only a limited pool and only so much milk to go around,” he said.

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