MILK price has long been a bone of contention between farmers and processors.
Whilst the price for milk solids at the farm gate has been higher over the past three seasons, so have input costs for farmers.
According to FreshAgenda, the current commodity value of milk in Australia in early March was $10.24, the highest it’s been since FreshAgenda started tracking it around five years ago. This is the average price for which Australian milk solids can currently be sold to the international market.
However, processors are slow to pass this value increase down the line, claiming there is little opportunity to take advantages of these prices this late in the season. Most farmers are instead being paid significantly less – around $7.00 per kilogram of milk solids.
Traditionally Australia has exported around 35 per cent of milk produced, but with the shrinking milk pool it is unlikely this is still the case. Processors are now citing the domestic market as the factor holding back the farm gate milk price in Australia.
However, this makes little sense when year in, year out, the likes of Queensland and NSW (who sell only into the domestic market) are paid a significant premium on the southern export states. This year’s milk price in QLD for example is pushing $10 per kilogram of solids.
Following the faltering of Murray Goulburn, and Fonterra clawing back funds already paid to farmers in 2016, the inequity in bargaining power between farmers and the processors become clear.
In response to public pressure, the Government made several moves to address the industry’s issues, including bringing in the Dairy Industry Code of Conduct. Another election promise was to provide $560,000 towards the development of a milk trading platform.
The breakthrough in milk price transparency and buyer competition was made in early March, according to Australian Dairy Farmers (ADF), when the Australian Milk Price Initiative (AMPI) ran its first regional milk spot markets.
The market was launched on the Mercari platform, which is owned and operated by Mercari Pty Ltd. Various bids across the three regions of Victoria were made with prices exceeding $9.00 kg/ms for the spot market. Individual months in the new season traded above $8.00 kg/ms.
“These are very positive signs,” ADF president Rick Gladigau said.
Regional spot markets deliver the monthly price transparency necessary to enable a forward hedging market like those seen in New Zealand, the US and Europe. Such markets enable dairy farmers and processors to lock in prices up to three years forward for some of their milk.
“There is no more transparent price signal than an open market price,” Mr Gladigau said.
“AMPI will improve risk management across the supply chain with back-to-back pricing from customer to processor to farmer, providing the ability to lock in margins across the chain. Better margin and risk management enables better planning, which, in turn, drives investment and growth across the supply chain. More investment in the supply chain means a strong dairy industry.”
In 2019 the Morrison Government provided ADF with an election pledge of $560,000 towards the development of a milk trading platform. This initiative was key to the Australian Dairy Plan’s commitment to deliver new measures to increase transparency and help manage market risk, including the establishment of a functioning milk price market.
“While the launch of the AMPI is an important step, the work is not over yet,” Mr Gladigau said.
“Effort is required in the future to ensure appropriate governance and operations and there is a well-designed education or extension program delivered to farmers and processors on how to participate in this or other trading initiatives and how this makes a difference to their risk management and bottom line. Ongoing investment and innovation are key to the future of the dairy industry. With an open market where farmers can choose who they sell their milk to, at what price, and on what terms, the future is looking brighter.”
The dairy market will be available 2.00-2.30pm AEST on two Thursdays of each month. Information and access to the market can be found at: https://riemann.com.au/products/.
Mercari provides trading venues for both non-financial and financial products and is also the holder of a Tier 1 Australian Market Licence pursuant to s795B of the Corporations Act.
