Are Australian dairy farmers really being overpaid for their milk?

It would seem not according to comparative global milk prices (see Table 1).

Our southern milk pool pricing is directly comparable to what overseas processors are paying their farmers for raw milk.

The two exceptions being the United States manufacturing/ingredient orientated milk and New Zealand.

The table is a straight comparison of absolute pricing.

It's worth noting that the European price (as published) averages 25 per cent lower than the same time last year.

It raises the question, if current European Union quoted prices are 25pc lower than the same time last year, were Australian farmers underpaid in the first half of the season?

From the little I am gleaning from the new season in Europe, the processors are lifting milk prices to farmers.

I see no real reason for processors talking down the milk price for farmers if they want to stop the milk pool destruction and the fragile turnaround.

We are now constantly being flooded in the media that Australian milk prices have decoupled from the rest of the world and that the Dairy Mandatory Code of Conduct is not fit for purpose and damaging the milk processing sector.

Processors currently are not paying above the odds for milk.

And the mandatory code is not forcing them into overpaying for milk.

So-called bulk commodity contracts are written 6-12 months in advance, are they not, because they know exactly what they will achieve in the markets they trade in for that season.

But from what has it really decoupled?

The processors keep focusing and pointing to NZ and comparing our $9.40 a kilogram milk solids price to their $NZ7.36/kg MS milk price.

The only real outlier is NZ and to some extent the US bulk export pricing.

They focus solely on NZ pricing when justifying their push for lower milk prices to farmers with little regard for the rest of the world. Why?

The real cause may lie in the fact that they may be relatively inefficient on a unit cost basis of processing.

There is no discussion about how efficient or inherently inefficient they are at turning that raw product into a value-added item compared with their overseas peers.

Right now, their overseas peers are paying farmers exactly what Australian farmers are receiving and competing in the same markets as Australian processors are.

Those same overseas processors are also the ones exporting into the Australian domestic market.

Surely Australian processors must be cost competitive against them as they have the same base cost for their raw milk.

It then all comes down to processing efficiency and product mix and markets.

There really needs to be some real and clear discussion and information about this as the current rhetoric from the processors is strong and unchallenged.

Farmers need to be better informed with regards to what the processor are putting forward as to why they want to drive down new season opening pricing expectations from farmers.

In some of what I'm reading and hearing Dairy Australia is also endorsing and reinforcing those expectations.

The lack of any real push back from the farmgate side of the argument is lamentable and disappointing.

Bottom line is the current Australian milk price is an absolute positive for the industry and has halted the milk pool decline.

For the first time Australian dairy farmers are receiving pricing that really reflects the true cost of production on farm with a fair and reasonable profit margin.

Any comparison to what NZ farmers get paid as a comparison has to be challenged and put into perspective as meaningless with regards to national production systems and what Australian farmers should expect to be paid for milk.

What also must be highlighted and reinforced more is how the NZ dairy industry uses the Australian domestic market as a surrogate for the lack of a viable NZ domestic market and without that their milk prices would be a lot lower.

That free and open accesses that was granted to NZ to help its industry grow is now damaging the Australian industry because of the size and scale of the NZ dairy industry and its consistent exchange rate advantage and that also needs to be reinforced and vocalised.

The processors' simple argument is they are paying over the odds for milk and are not profitable or not profitable enough from their perspective and that this is bad for the industry.

It's all down to the price they have to pay for the milk to Australian farmers nothing else.

The number they keep throwing around is $2/kg MS.

The question remains unanswered are they really overpaying dairy farmers for their milk?

I don't know what I'm missing here but without a reliable milk pool processors don't have the foundations to build an efficient profitable business on long term, so is slashing the milk price going to solve their problems?

Not really

So far, there have been no major processors going broke only short-term profit downgrades, some small boutique processors have closed and there have been plant rationalisations because of age and product mix changes. This is not unusual.

So, it's not the milk price that is currently holding back processors' ability to be competitive in the marketplace, as well as profitable.

Focusing on the NZ milk pricing alone is misleading, as a comparison to world pricing reveals what constitutes a fair and competitive milk price to Australian dairy farmers.