Why aren't farmers profitable anymore?

07 Feb, 2018 04:00 AM
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All farmers need to be within 30 cents a kilogram milk solids of each other if this industry is to survive - argues one Gippsland dairyfarmer.
.as long as the pricing model is corrupted and broken, you will not make farmers more profitable ...
All farmers need to be within 30 cents a kilogram milk solids of each other if this industry is to survive - argues one Gippsland dairyfarmer.

OPINION: Farmers are asking the question, why are we not profitable anymore?

It was the main question from the floor at the last Dairy Australia annual general meeting.

In that room, we had every mover and shaker responsible for our industry’s future and not one of them, man nor woman, stood up to tell the audience what the problem was, and to take responsibility for it.

They were all silent.

It’s not the milk price as such, but the pricing models of the processors that have taken our profit margins away from us by stealth in the name of so-called efficiency and so-called better and higher value product mix, which is all just a fallacy.

What did DA present as a way forward?

How did they respond to the questions?

They acknowledge the problem but their solution is laughable.

They say we need to better educate farmers to be better business people and managers.

You can educate all you like but as long as the pricing model is corrupted and broken, you will not make farmers more profitable via upskilling.

That’s why, pre-2008, we were more resilient and profitable because the pricing model was not broken and more evenly balanced for both party’s benefit.

So Fonterra and other processors can say, that by investing capital in new processing capacity to grow and support dairyfarmers and the industry, they are showing their support for the long-term future of this industry.

This is laughable, when they are in fact just demonstrating their own self-interest and totally ignoring and showing total disrespect for their farmers and supply base.

We have too much underused capacity now, making our industry inefficient.

Until someone, be it our leadership or the processors themselves, addresses the elephant in the room (milk pricing structures) farmers’ profitability will continue to go down the toilet along with the whole industry.

So who’s talking - no one and farmers wait in vain.

The silence is deafening.

What we have now regarding milk pricing is a Ponzi scheme.

They rape the spring price to underpin the shoulder.

Farmers then chase the higher milk price of the shoulder milk but are then putting their hands into their wallets to pay for the milk they now produce on the so-called shoulder.

The processors then hand back to the farmer the extra money they loaned to the processor to produce this shoulder milk (with no interest) and the circle continues until there is no spring surplus left to support the merry-go-round.

What has to stop is farmers who believe their milk is worth more than their neighbour's milk and demand a higher price for it.

We need to realise that all farmers need to be within 30 cents a kilogram milk solids of each other if this industry is to survive.

The processors are just playing to this and farmer’s egos.

Farmers themselves will be the biggest roadblock to creating a fairer pricing system and not the processors and that the rub

*Bernhard Lubitz is a Gippsland dairyfarmer.

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READER COMMENTS

Typo
7/02/2018 10:19:31 AM, on Australian Dairyfarmer

The disconnect here is that Farmers believe they are selling a Value Added Product (and, that is a valid point of view for them) - that becomes a Commodity when the Buyer (in this case the Processor) converts it. Value gets destroyed when you make a product a Commodity. Plain as Day. The best way for Farmers to stay profitable is to ensure that the product they produce remains a Value Added product when the ultimate Consumer buys it. This could mean diversification into Cheese, Butter and Yogurt making - albeit on a small scale.

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