Frontbenders or backbenders – Being flexible in an inflexible market place

Contortionists according to wiki “have unusual natural flexibility, which is then enhanced through acrobatic training, or they put themselves through intense, vigorous and painful training to gain this flexibility”.

Contorsionists

So how does this relate to dairy farming? Quite a bit in fact! Cows and farmers are living things that ideally should be able to operate in a flexible environment to achieve the best outcomes for their health and wellbeing. However more and more they are both finding themselves operating in a totally inflexible market place and quite a bit of intense vigorous and painful training is going on to help them bend and weave and duck to cope

Let me explain

Dairying systems in Australia are probably as diverse as they get and they depend on a combination of factors which include the best options for the cows, the milk market you supply, where your business is located, and your soil and the types of pastures you can grow, the amount of rain, the temperature range, your access to grains and other bought in feed. I could go on forever.

This diversity of production systems also means a diversity of calving patterns. These include batch calving, seasonal calving, split calving and year round calving

The most common is seasonal production where cows calve during the peak period of pasture availability. This system is used by nearly two-thirds of Australian dairy farms and is most prominent in Tasmania, Victoria and South Australia.

Graeme Nicoll who farms in Victoria and writes the excellent blog Montrose Dairy has written a great post about the ins and outs of his seasonal calving pattern here

Milk Production

Most of Australia’s milk production is concentrated in Victoria with the second biggest milk production state being NSW

The second most common production system is year round production. Under this system, calving is spread throughout the year, which means that milk production is stable during the year (or as close as it can be.) This production system is most prominent in areas like ours which supply fresh milk for domestic production.

Clover Hill Dairies pregnant cows

Hello welcome to my world

We supply two different milk processors (Parmalat and Lion via Dairy Farmers Milk Supply Coop) who both process and supply drinking milk for the Australian domestic market. This means they need a consistent supply of high quality fresh milk close to their processing plants which are invariably located either in or as close to the major capital cities as possible

Producing milk consistently all year round is not as easy as it might sound. It fact it’s damned tricky. Milk production is essentially the conversion of pasture to milk.

IMG_1685

The paddock in front of my house was planted with ryegrass and oats 3 weeks ago and its not growing near as fast as it should be

The milking herd

Hopefully we will get a nice drop of rain, a bit of warm weather and it will look like this again shortly

So pasture is the Holy Grail and the best pasture is available in spring and early summer so logically cows produce more milk during this time of the year.

Current Seaon

As you can see milk production goes up significantly in Australia in Sept – December

To encourage farmers who supply the domestic market to balance this and achieve a “flat supply curve” i.e. less milk in spring and more milk in the autumn/winter we are paid a higher price for autumn/winter milk for the milk we supply Parmalat

Lion/Dairy Farmers Milk Supply Coop. on the other hand have a two tier system (as Malcolm Fraser said “life wasn’t meant to be easy”)

Tier 1 milk prices are paid on milk supply volumes representing an allocation of what Lion (formerly National Foods) have estimated is their fresh drinking milk requirements (“anticipated full demand” or AFD). That is you are essentially allocated a milk quota

To discourage you (and believe me it’s very discouraging) farmers who supply milk in excess of these contracted Tier 1 volumes attract Tier 2 prices.( which in the main are half the price you get for Tier 1)

For farmers, the pressures arise because they must make investment decisions about the size and composition of their herds and their infrastructure investments more than nine months in advance. Those decisions necessitate a longer term investment horizon and exposure to ongoing fixed costs. Consequently, farmers look to the processors to provide guaranteed cash flows over the farmers’ investment horizons. However, the processors are not able to commit to supply arrangements with farmers until the processors have finalised their contracts for house/private brand volumes with the supermarkets.

The processors are exposed to the risk of significant loss when their milk supply arrangements with farmers extend beyond the term of their house brand contracts. In  2011, Lion claim changes in the configuration of demand for fresh white milk caused them to lose approximately $20 million on its fresh white milk contracts. On top of this Lion lost the Woolworths house/private label supply contract which was a whopping 20% of its milk intake and they have subsequently written down their business by $1 billion, this is on top of a ½ billion dollars write down in the previous financial year. Scary stuff

Milk producers like us contracted to Lion (through direct supply contracts or milk supply co-operative DFMC) currently suffer from the combined effects of a rationalization of Lion’s processing requirements in dairy products (other than fresh milk) and the loss of private label volumes.

Our business is doing the very best it can to listen to the market place and we are focused on changing with the world. We are not unique in this respect.

We have outsourced expertise to help us manage risk and adopt new technology and farming strategies that improve efficiency.

We have found novel ways to grow the businesses and have built strong natural resource management partnerships and have undertaken extensive Landcare projects to adapt to climate variability and build carbon in the soil

We have innovatively grown our business in a peri urban environment where 90% of the prime agricultural land is now owned by lifestyle farmers without large injections of capital through procuring lease land

We are actively working to secure markets for our products by working with the processing sector and supplying the companies that best fit our farming system. That is DFMC/Lion on the home farm and Parmalat on the lease farm.

We are also thinking of hiring a full time physio/chiropractor because the constant balancing act ain’t getting any easier

Juggling act

Author: Lynne Strong

I am a 6th generation farmer who loves surrounding myself with optimistic, courageous people who believe in inclusion, diversity and equality and embrace the power of collaboration. I am the founder of Picture You in Agriculture. Our team design and deliver programs that inspire pride in Australian agriculture and support young people to thrive in business and life