DAIRYFARMERS want to see improved transparency and greater security in their milk contracts.
The producer priorities emerged from a project exploring what farmers want to see in their arrangements with milk processors.
The project involved a series of workshops with dairyfarmers in the Limestone Coast and south-western Vic late last year, led by Melbourne-based consultancy Freshagenda.
Participants were encouraged to provide feedback about milk procurement options offered by major processors, what they liked and did not like, what was working and what was not from a practical point of view.
They were also asked to share ideas about how payment systems could be improved, and alternative options that better took into account the needs of their own businesses, and the industry generally.
Freshagenda director Steve Spencer said while there were no huge surprises, the workshops highlighted the industry was going through a period of seismic change, on a scale that it had not been witnessed for some time.
"Many farmers are deeply disillusioned with the status quo after events last year,” he said.
“They were still angry and reflected a significant loss of trust.
"Participants in the workshops made it clear that they want open relationships with their processors – the importance of honesty, transparency and trust was raised at every meeting.
“They also want greater security, through better forward signals and accompanying intelligence."
Mr Spencer said even though it was apparent that one model would never fit everyone's needs, the sessions revealed there was plenty of common ground.
Flat pricing and models with minimum fixed prices for a certain percentage of milk, as opposed to layered approaches, raised some interest.
"Many farmers felt volume and productivity incentives had complicated farmgate milk prices and disadvantaged younger, smaller farmers," Mr Spencer said.
"There was also considerable discussion about the seasonality of pricing.
“Seasonal cash flow challenges have been an issue for years in some parts of Australia, with farmers having to cope with the lowest prices at a time of the year when the pressures to commit cash are high, because they are, for instance, making silage or buying supplementary feed.”
Mr Spencer said feedback from the workshops showed the seasonal incentives often forced farmers to change practices and chase incentives for milk that is more expensive to produce.
He said farmers also wanted to see a simpler payment system as well as have more information on world market trends to enable them to make better management decisions.
The project was initiated by the Union Dairy Company – a joint venture between the Midfield Group and the Louis Dreyfus Company – which is due to start processing milk at its new plant near Penola by mid-year.
The project has also received funding and support from the SA Dairy Industry Fund, with the goal to share its key finding with the SA Dairyfarmers’ Association and the broader industry.
“In the lead up to signing up their first suppliers, UDC was keen to find out what sort of features they should be offering farmers that would be most advantageous to their businesses, so the company decided to engage an independent researcher to go out and ask,” Fund chair Dennis Mutton said.
“To our knowledge, no one has carried out a project like this before, and the timing was critical, given last year's events, the Senate and Australian Competition & Consumer Commision inquiries looking into codes of practice for milk supply contracts, and the rapid changes we are seeing in the Australian industry.
“Traditionally farmers have been very loyal and rarely switched processors, but that situation has changed fundamentally in the past 12 months.”
Mr Mutton said one of the most pleasing outcomes was the level of interest it had generated among processors, particularly newer entrants to the dairy market.
“In most of the state's dairy regions there is strong competition for milk supply at the moment, and processors are very keen to review their milk procurement models to see if they can achieve a better alignment with what farmers are seeking,” he said.
“That is a heartening sign.”