For farmers sometimes the light at the end of the tunnel can feel like a train coming straight at you

This is a long post that I have given a lot of thought. Anyone at all connected to the Australian dairy industry will know farmers have tough times ahead and they need all the support they can get

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Upfront to me there seems to have been a lack of honesty and transparency from people the farmers ought to have been able to trust. The challenge now is how do we ensure that market opportunism doesn’t make a bad situation worse and the farmgate price decision makers realise now is not the time to feather their nest with bonuses and its time to look after the farmers who look after them.

Honesty is a two way street

Ht Rod Gribble 

These days I sit on the sidelines and feel others pain. My contribution now lies solely beyond the farmgate and my reflections below are from the other side of the fence

Last week I attended the PIEFA Food and Fibre Matters conference

To me PIEFA is an organisation that builds and nurtures relationships between agriculture, government, service providers, education experts teachers, students and industry

There were some phenomenal presentations from teachers, industry and education experts. See here

There were some great examples of success stories from both overseas and Australia.

US guest speaker Jay Jackman clearly defined the role of Ag-Educators (Teachers) and those whose role is Ag-Literacy (AGvocacy)

In the AGvocacy space the CEO of RIST Bill Hamill’s presentation tackled the elephant in the room “how do we balance the need to attract the best and the brightest to careers in agriculture with the realities of how financially and emotionally tough farming can be”.

The current crisis in the Australian dairy industry is a prime example and its heartening to see there are some people doing that very well

Before I share with you some of these lead by example media and initiatives I would like to share with you some of Bill’s findings that show review after review has identified poor image and perceptions of agriculture by young people as an impediment to the study of agricultural science and careers in farming.

Part of Bill’s PhD research aims to

 ‘To assist key stakeholders servicing the agribusiness sector to adapt the language they use to describe their industry and careers in order to positively engage with the Generation Z students and increase both the number of enrolments into agricultural science and the pursuit of careers in agriculture more generally’.

Below is some of Bill’s previous findings as well as some of his PhD preliminary findings

  • Gen Z
    • are worried about financial insecurity.
    • Are looking for positive and engaging careers.
    • ‘work to live’
    • are more likely to pursue a career in agriculture if they were introduced to it at an early age with practical and positive hands on training.
  • Key influences
    • Parents have the strongest influence on young people’s career aspirations.
    • Employers have a strong influence on retention of young people in agricultural careers.
    • Language and images used by the industry have an important connection to attraction and retention.

Bill reviewed

  • Rural Newspapers – 150 front pages selected in years 2011 and 2012 (VIC, SA, NSW, WA)
  • 20 submissions to Government Inquiries by farmers, industry spokespersons, government (2003, 2012 x3)
  • University web sites (provide degrees in Agricultural Science) x 2

His preliminary findings found that whilst only 18% of jobs are behind the farmgate the discourse of agriculture is focused about the farm and activities related to farming and there are four sub – discourses tied into this:

  • Negative discourse on farm income – 52%
  • Negative discourse on instability within the industry -39%
  • Negative discourse of the stereotype of who represents agriculture – male, old, poorly presented – 63%
  • Negative discourse of the work environment of agriculture – 30%

Bill used this quote from 2013 to make a point

‘With farmers across Australia struggling to maintain their financial stability in the face of continued dry weather conditions and other challenges, including fluctuating commodity prices and rising rural debt, the increase to the national minimum wage had the potential to create a further cost burden to the agriculture industry’.   CEO National Farmers Federation

Post Bill’s presentation I had a conversation with a farmer I admire greatly who has spent a lot of time in the political lobby and AGvocacy space and she reflected by saying ‘our leaders use this type of language because they think this is what their farmers want them to say’

Bill summed up his presentation with

Ask not what ‘they’ can do to make agriculture more attractive for Gen Z, ask what you can do to promote agriculture as a positive and fulfilling career to the next generation.

At the moment that is a tough call in drought affected areas across Australia and in the Australian dairy industry.

Some questions we could ask ourselves are

  • Do we really want our industry leaders to share the doom and gloom stories?
  • Do we want sympathy or empathy?
  • Who do we want to hear from when times are tough

I think in the main farmers want to hear from trusted voices with skin in the game.

As always dairy farmer blogger Marian MacDonald is showing great leadership  See here

Farmers want to hear from industry leaders who are doing more than talking

Loving this media example from David Basham SA Dairy Farmers Association President who is leaving no stone unturned.

  1. We have already spoken to the SA Minister for Agriculture’s office to ensure the Minister has an understanding of the implications this situation may have on the dairy industry here in SA.
  2. We have also spoken at length with the Federal Assistant Minister for Agriculture, SA Senator, Anne Ruston.
  3. We are seeking indications from other major dairy processors operating in SA regarding the probability that they will re-evaluate their prices for the current year.
  4. We are also seeking an indication from the companies on their ability to accept extra supply.
  5. Our incoming CEO, Andrew Curtis has written by email to all affected members offering the support of SADA in the days and weeks ahead.
  6. We are also speaking with financial institutions and others regarding the ramifications of this decision. We would be happy to discuss our findings with all members of SADA
  7. We will continue to engage with Murray Goulburn staff and staff of other processors to encourage them to talk directly with their suppliers and discuss the current situation and how this will affect the suppliers going forward.
  8. We have also spoken with Rural Business Support (formerly Rural Financial Counselling Service) to alert them to the situation and would encourage dairy farmers to make contact with them to help may have on their businesses.

“Our concern is the health and wellbeing of our farming families, and also the service sector that provides such valuable support to the dairy community.

As soon as we are confident we understand the long-term implications on farmers and the dairy communities we will be contact again with our member” David Basham

Farmers also want to know government and the community care.

Dairy farmers Diane Bowles and Catherine Jenkins have created a great iniitaitve that is allowing farmers to help support each other and also invite the community to “show some #dairylove” Story here and join the Facebook page here

Show some ‪#‎dairylove is a group created to support our great Australian dairy farmers and to encourage everyone to buy more of the world class dairy products produced by caring farmers. Eat more dairy and show us your #dairylove!

Nick Reynard

And whilst dairy farmers have traditionally given the ‘suits’ a bit of a hard time they too have an important role to play and Dairy Australia has ramped up Tactics for Hard times

Blurb  Dairy Australia will ramp-up the rollout and use of DairyBase to assist dairy farmers in revising their budgets for 2015/16 and developing budgets for 2016/17.

Dairy Australia is examining all of its support programs to see where it can adapt, adjust and respond with relevant advice, information and support. It will also support the efforts of milk processors and other dairy community service providers.

According to Alison Ledgerwood in this TEDxUCDavis Getting stuck in the negatives (and how to get unstuck) farmers are not alone and people in general have a fundamental tendency to tilt towards the negative. Her research has shown that it easy to move from a positive view of things to a negative view but far harder to shift from negative to positive.

Alison tells us

Literally this takes work. This takes effort. And you can practice it. According to Alison you can train your mind to do this better.

We can also rehearse good news and share it with others. We tend to think great that misery loves company that venting will help get rid of our negative emotions, that we will feel better if we just talk about how terrible our day was. And so we talk. And we talk. But we forget to talk about the good stuff.

And yet that’s exactly where our minds need the most practice. So my husband who has this disconcerting habit of listening to what I say other people should do and then pointing out that technically speaking I’m a person too has taken to listening to me for about two minutes on days when I come home all grumpy and complaining about everything. And he listens. And he says okay but what happened today that was good.

And so I tell him about the student who came up to me after class with this really interesting insightful question. And I tell him about the friend who emailed me out of the blue this morning just to say hello. And somewhere in the telling I start to smile. And I start to think that maybe my day was pretty decent after all.

I think we can also work in our communities to focus on the upside. We can be more aware that bad tends to stick. Our minds may be built to look for negative information and to hold onto it. But we can also retrain our minds if we put some effort into it and start to see that the glass may be a little fuller than we initially thought.

Sound of rain

For all those dairy farmers desperately looking for the positive I have reprinted this glass half full review of the Murray Goulburn situation on LinkedIn by former CEO of Dairy Connect Mike Logan

What went on at Murray Goulburn? Will you be disappointed? Or, is it an opportunity?

 Since leaving the dairy industry representative body Dairy Connect last month, Murray Goulburn has been in the news and I have been asked my view. While not having any skin in the game any more, I have been sufficiently involved in the dairy market to have considered it. 

I can say this; Gary Helou and the MG Board have tried to do something different in an industry that desperately needs a fresh approach. That they have not yet succeeded is a pity, but it is time that is needed.

Time and financial markets are not friends. 

Gary Helou came in and attempted to modernise a very old and conservative company. MG needed to approach the future with a new strategy because the world is changing rapidly and so should MG. Without doubt, Helou was brought in to do that. It was never going to be pretty, but it is still needed.

To achieve a new future, the MG Board decided they needed new markets and a new capital base. The old focus on commodity dairy products had led to low farmgate prices and no growth in their supply base. Their members were getting restless as the looked across the creek to the successful CuzzyBro’s at Fonterra. 

Fonterra’s capital base and government underwriting had made them unassailable in the commodity market. MG had to do something different. MG envies Fonterra’s protective legislation but has to work within the rules of our post-deregulation, crazy-brave competition system. 

Coles

MG got into bed with Coles. Every supplier knows that when you get into bed with Coles you should cinch up and prepare for a rough ride. MG won the Coles private label fresh milk contract in NSW and Victoria after a very competitive and value destroying bidding process. The Board decided to invest in two new factories to supply fresh milk into those markets. 

We heard all the usual hyperbole of state of art/automated/world class/capacity for growth and so on. There is probably no margin in that contract even with the new factories. 

They were investing in a market that was (and is) oversupplied in those regions. Neither NSW nor Victoria needed new fresh milk capacity. It was already well supplied with sufficient but antiquated capacity. Subsequently, the Sydney factory is remarkably underutilised. 

Devondale Fresh Milk

They thought the way to create value from the deal with Coles was to develop their own branded, higher value fresh milk. The Devondale branded fresh milk has not been the success the Board would have reasonably hoped for. It has been discounted as low as 75c/litre so it has been worth less than the Coles homebrand product. 

All of those that are expert in branding questioned the strategy. Simply, building a new brand that has no point of differentiation (unlike a2) is only a function of money. You have to buy the brand space. This may not work. Demonstrably, it didn’t. 

You may have seen their advertising? It made the appallingDairy Austalia Legendairy advertisements look good. One was so bad that it was declared racist.

Capital Raising

In the middle of this, Warnambool Cheese & Butter came on the market. Humility was turned to hubris and the bidding was absolutely stupid. The wiley Barry Irvin came out of the bidding war with dignity intact. He made a quick $100million for Bega.

MG too made serious money on the ending of their shareholding in WCB. Dairy was gold and they had gold. 

MG needed a new capital model and the time was ripe. They followed the old adage – when everyone is buying, you sell.

As a Co-operative in Australia their choices are limited. They came up with a creative solution where they raised a unit trust to support the Co-op’s balance sheet. Then they connected the dividends of the unit trust to the farmgate milk price. They are not a Co-op any more, and not a fully listed corporation. They are half pregnant. The current situation is undoubtedly awkward to manage.

All of the talk about $6/kg farmgate milk price held up the Unit Trust and made the farmers feel good about their new business partners. The MG Board and their CEO, Gary Helou fell for the old trap of over promising and under delivering. 

Suddenly, they were not only a half pregnant Co-operative, but the investment market was soon going to find out that they needed a shotgun. The unconsummated pregnancy has not delivered sufficient satisfaction.

Infant Formula

Finally, here is where they went right. The board has agreed to a series of offshore partnerships to deliver infant formulaand other products to the new and emerging markets. These are yet to bear fruit. The global dairy market has tanked on the back of some unfortunate political circumstances in Russia and the Chinese who overbought Whole Milk Powder to a never-seen-before level of stocks to use. The WMP powder price literally burst like the bubble it was. These are political and market circumstances that the investment market should clearly understand. To add insult to injury, the little Aussie Battler went north to 76cents.

The demand fundamentals of the target export market are unchanged. The demand for manufactured and branded milk products from reliable safe suppliers is growing at a steady and remarkable rate.

Murray Goulburn’s strategy of developing supply capability in partnership with its customers to deliver high value, branded and packaged dairy products such as infant formula is well thought through. The NSW dairy industry suggested this to MG nearly four years ago and was laughed at but they have since seen the light very clearly. 

That market is now recovering and the strategy should work. 

It will work soon – but not soon enough for the impatient investment market who want results every quarter and damn the future. 

Helou sent packing

The Board, probably at the behest of the investment markets, have taken out the shotgun and put Helou out of his misery. There is much dancing on Gary’s grave.

Helou should be recognised for trying to change things. He gave it a go and good on him. It is better to have tried and failed than never to have tried at all. He came from the outside of the industry so he was never going to be a favourite. However, everything he did was most probably with the approval of the MG board.

Where to from here?

There are three sides to the question, what should the investors do and what should the farmers do? But finally, what should the Board do?

Investors:

The investors came into the unit trust in full knowledge of the circumstances of the milk price and their dividends. They also knew that it is agriculture in a rapidly changing global market. At the moment, the situation looks grim, but the fundamentals are good. The investors will do what investors do, but they are only holders in a unit trust and they usually have the forsesight of a rear view mirror.

Farmers:

They farmers are the ones feeling the pain but they are the ones that should be the adults in this situation. They should stick with their co-operative and encourage the Board to deliver on the longer term strategy. 

Board:

Directors should now brace themselves for a tough ride, but continue to assure the farmers – the suppliers to their business – that the strategy has had a few setbacks, but is still correct. They should tell the investors to look through the windscreen. 

Now everyone is selling, should you buy?

Show some #dairylove because you might just be the light at the end of the tunnel for some-one else

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