Growing the Australian dairy industry is not all about farmgate price

ABC reporter Catherine McLoon has eloquently reported today on the Productivity Commission report into the Australian dairy industry found here

In a nutshell the Productivity Commission report says that without added incentives dairy farmers in Australia have no motivation to increase production.

“Productivity gains by farmers have underwritten profit in dairy manufacturing and sustained the industry in recent years.

“A lot of the context for this sort of inquiry has been an expectation that we will grow the industry as New Zealand has grown its industry,” Mr Harris said.

“If we are to do that, we will need to provide incentives to farmers to continue to take the sorts of productivity enhancing measures they have to date.

“That will probably involve improvements to the working relationship between manufacturers and farmers.” Says Commission chairman Peter Harris

It also says if processors want more milk and they do as the slide below shows they are going to have to get more creative and the commission believes quite rightly that paying an increased farmgate milk price is not necessarily the answer

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Slide from David Lord’s CEO of Saputo’s presentation at PICCC 2014 Think Tank

In the first instance to the processors defense they can only pay what they get out of the marketplace. For those processors supplying the international market the export market is definitely a roller coaster. For example awesome returns last year now predicted to be horrendous in 2015/16 and that will flow back to the farmgate as the recent announcement by Fonterra NZ shows. See post from Milk Maid Marian here

‘Processors are paying the highest possible prices relative to the trading conditions. says David Lord CEO Saputo

On the domestic front we all know it’s a nightmare supplying a duopoly with the power that Colesworth have

At a farm level dairy farmers do tend to talk far too much about farmgate price instead of focusing on what’s left over when they take out all their costs. As we all know using the used car analogy it’s not what you get paid for your used car that counts it’s the price difference between the new car and the used car.

So how can the processors get creative and work with their farmers to ensure that they have enough money in the bank at the end of each month to make the investment in blood, sweat and tears worth it?

David Lord recently outlined the Saputo model going forward

According to Mr Lord

‘There are significant improvements to be made in efficiency gains over the way farm systems currently operate:

· Maximising individual farm performance and profitability;

· Effective extension programs that spread best practice and attract broad participation;

· Transitioning of farm assets into the hands of those who want to grow

The extent of the impact will be determined by decisions taken by farmers; debt / equity position, stage of life, optimistic / pessimistic outlook, quality of farm assets, appetite for change…

Also what struck me from this presentation is there is HUGE room for improvement in the way our dairy farmers are perceived by their processors

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Slide from David Lord’s CEO of Saputo’s presentation at PICCC 2014 Think Tank

As you can see Mr Lord classifies his suppliers in this instance as

  • Model Farm
  • Reluctant Improver
  • Resistant to Change
  • Likely to Exit.

Mr Lord was asked by the audience how many of Saputo’s Australian suppliers fit into the ‘Model Farm’ category and if my memory serves me correctly his answer was 30%. No-one asked him his definition of ‘Model’ but I think the other classifications make that fairly clear.

It would very interesting to do a survey of all Saputo’s Australian suppliers and ask them which category they believed they fitted into

Mr Lord also made it clear that the processors needed to get very market savvy and focus on Australia’s areas of strength which are underpinned by our reputation for quality

clip_image006[6] Slide from David Lord’s CEO of Saputo’s presentation at PICCC 2014 Think Tank

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Slide from David Lord’s CEO of Saputo’s presentation at PICCC 2014 Think Tank

So if all the other Australian processors perceive their farmers to be in the same categories as Saputo Australia and 70% are either reluctant Improvers, resistant to change or likely to exit how does the industry work with the reluctants and the resistants and support those likely to exit. Or better still how do we as farmers work with our processors to change those images and perceptions and descriptions of ‘reluctants and resistants” ?

I recently met with Dairy Australia’s new whizz kid in this space former private consultant Neil Lane and as it turns out Neil is putting together an extensive array of programs to help our Australian dairy farmers get fair returns for their efforts and very importantly have the capacity to ride the peaks and troughs.

I have invited Neil to provide an outline of his model with my readers.

According to Neil Dairy Australia’s new Farm Business Management program is still in development stage with a proposed roll out in early in 2015.

The planks will

1. Imbed farm business management and analysis principles across the industry so that we have consistent and correct use of terminology and metrics in farm business analysis

2. Offer capability building programs that will include a series of capability programs covering Farm Business Management skills required across the spectrum of Novice (thinking about applying of an ABN) through to Expert where a successful farmer looking to better utilise their skills and their balance sheet. This type of capability building would also be targeted across all sectors of the industry including but not exclusive to service providers, milk processors and researchers.

3. Provide better tools to help farmers manage their farm business. The first initiative planned will be an energy driven milk feed and milk budget that links to a cash flow budget.

4. Roll out DairyBase which is a queryable database that will house physical and financial performance farm data sets and allow for more detailed farm business analysis across the spectrum from individual farm level to industry analysis. This will help farmers to ask the questions they need to ask about their business and provide a tool which will allow them to benchmark their own business year by year against their own previous performance.

I look forward to sharing what is happening in this space to support our dairy farmers from both an industry and processor supported level with you over the next 12 months.

I look forward to the day when the CEO’s of our dairy companies talk with pride about all their farmers.

Lets not forget farmers have ownership of what’s in their control and it’s time we acknowledged we too have a pivotal role in determining our profitability and the way we are perceived. Profitable farmers are empowered and able to invest in innovation, technology, employ and give back to the landscape and the cows that underpin their business success. Market savvy farmers also realise how they are perceived plays an important roll in their leveraging capacity

Once we have a majority cohort of financially literate, confident and proud Australian dairy farmers (and only then) will we have a strong foundation for the Australian dairy industry to grow and grab the opportunities as they arise.

We are all in this together. Let’s embrace it

Some great food for thought can also be found at David Edgerton’s blog found here

Another great grass roots initiative to help build farmer capacity to ride the peaks and trough from from James Walker can be found here Agrihive  

we are all in this together

Fair go Woolworths I am shocked and disappointed

Can you believe Woolworths said its 2014 first half profit was up 14.5 per cent to $1.32 billion, or up 6 per cent ( Read more ) yet they expect vegetable growers to help fund their fee for engaging James Oliver

jamie-oliver-woolworths-christams-sun-herald

Apparently Woolworths thinks everyone deserves a better deal  EXCEPT farmers

Goodness gracious me Woolworths this is disgraceful Veg growers slam Woolies’ Jamie Oliver fee and I am confident that Jamie Oliver will be just as mortified as me that this is happening.

Ausveg says growers have received requests from Woolworths to voluntarily pay a charge towards the costs of the new “Jamie’s Garden” promotion, equal to 40 cents a crate of produce sold to the supermarket.

While Woolworths says the request is voluntary, Ausveg national marketing manager Simon Coburn says growers are not in a position to say no.

“The growers feel like they are in a position that, if they were to say no, they are worried that their contracts would be reduced or terminated completely,” Mr Coburn said.

He said growers already paid a charge of 2.5 per cent to five per cent of their sales back to Woolworths to cover marketing costs, and the 40-cent charge was in addition to that.

The cost would range from a few thousand dollars to $250,000 for a grower, depending on the size of their contract, he said.

“Some are telling us they don’t have 40 cents left in their margins,” Mr Coburn said. Source AAP

Follow up media

Has Jamie Oliver been burnt by Woolworths media

http://www.brisbanetimes.com.au/queensland/blogs/the-hermit/jamie-oliver-burnt-by-woolworths-partnership-20140618-3aadz.html

http://www.smh.com.au/national/woolworths-recalls-jamie-oliver-toy-over-safety-fears-20140618-zsbdj.html

http://m.theaustralian.com.au/business/jamie-oliver-to-tackle-woolworths-over-vegie-levy/story-e6frg8zx-1226961808359?sv=e5efeb36f1aaf373557dd0b4427781f#mm-premium

and what is the ACCC doing about it. Quite a bit actually

http://www.theaustralian.com.au/news/features/are-supermarket-giants-simply-too-big/story-e6frg6z6-1226961691069#mm-premium

Coles show a little respect

As farmers we all know its not smart to criticise our customer. In this instance the customer is Coles but I think you will all agree when you see this presentation by Coles’ general manager of corporate affairs, Robert Hadler,which he titled Coles-the Consumer Champion! A Reputation Management Case Study that Coles is not your typical customer nor fits my definition of a champion.

I mean just what sort of ‘person’ buys a product and devalues the people they bought it from and skites about how they manipulated the people they sold it too.

“every PR tactic possible to neutralise the noise” around its move to drop the price of milk in supermarkets to $1 a litre.’

The Coles Down Down Down $1 milk campaign made me livid for two reasons

Firstly it devalued our wonderful amazing cows showcased on YouTube below by dairy Young Farming Champion Tom Pearce

Tom Pearce Farmers Tasty Cheese

Tom Pearce  the dairy farmer who puts the cheese on your cracker

Secondly no matter how much spin Coles put on it – the Coles $1 milk campaign almost bought the NSW dairy industry to its knees

Another of the Art4Agriculuture  Young Farming Champion’s Cassie MacDonald was so incensed by Coles $1 milk campaign  she penned this now iconic infographic which has had over 20 thousand YouTube hits that blew Coles original  infographic out of the water ( I note Coles have now taken it down )

The Guardian makes some strong comment about Mr Hadler’s presentation here

I give you a few take outs from the article Coles boasts about media campaign to silence ‘milk war’ critics

After two years of a PR effort to persuade Australians that the major supermarkets’ “milk war” is not harming small dairy farmers, Coles has been caught out boasting about its successful media campaign to silence its critics and “win the day”.

His (Robert Hadler) presentation, entitled Coles – the consumer champion! A Reputation Management Case Study, was delivered to the Centre for Corporate Public Affairs (CCPA) in June but was no longer available to download on the CCPA website on Sunday.

It identifies significant negative “noise”, or unfavourable coverage, for the supermarket’s “Down Down” milk campaign, which peaked in the third quarter of 2011, the same year the price drop was brought in, and shows the regional press as reporting the most negative coverage in that time period.

The presentation goes on to identify the importance of guarding “against a political and regulatory response” to the supermarket’s drive to push down the price of milk. It also says that the “agri-political fallout continued after the ‘Down Down milk anniversary’”.

The presentation then details how Coles implemented new media strategies, including a social media campaign, the use of “fact sheets to debunk myths” and fresh advertising.

This slideshow requires JavaScript.

It describes a “game changer” moment in the so-called “milk wars” as the implementation of multi billion-dollar ten-year deals to source milk directly with two farmer cooperatives,announced in April this year, which brought about an “immediate shift to positive coverage”.

Game Changer

See the full presentation here 

Now you will notice this slide features some of our twitter agvocates TWT Dairy writer Simone Smith, NSW dairy farmer David Williams and the dairy industry champion of champions school teacher Lisa Claessen who is so incensed by Mr Hadlers presentation she has relaunched her petition in which calls Coles to task

Lisa Claessen David Vacy and Simone Smith

Lisa says

I am not a dairy farmer, I’m a consumer in a rural area who has seen the fallout in my community. My inspiration came from two young men whom I taught, from a dairying family, and an insight into the struggles they were ensuing as a result. I am not anti – supermarket. I live in a region that relies on them. All I would like to see is a fair go, a compromise from Coles, that reflects the consumer’s desire for value, and allows the dairy farmer to operate sustainably. We need to support these guys so they can continue to deliver a beautiful product which we often take for granted.

I read something this morning that left me gutted for our Aussie dairy farmers, and as I read through, I couldn’t help but feel angered…
I leave you the link to peruse –http://www.documentcloud.org/documents/800088-reputation-coles.html#document/p5
This document has been doing the rounds through the media and on tv.
A tweet regarding this petition appears on one of the pages, along with a triumphant tone from Coles, congratulating themselves on the outcome of their patience with the objection over discount milk pricing.
Along with a wish for a desperately needed Code of Conduct for Supermarkets, I have a strong desire to carry on with this petition.

Please pass this petition on to someone else to read and sign. If we can pump up the petition numbers further, we are sending a message to Coles, especially whilst there is media attention, that our farmers have been treated shabbily and without consideration. The above document is most telling.
Yours
Lisa Claessen

Coles I don’t know what your definition of champion is but as far as integrity, authenticity,  commitment, aspiring to excellence in my mind our Aussie farmers will win the red, blue and white sash everyday

When all the power lies at the top of the supply chain the country loses

colesdown_300

I have reprinted this great post from Jan Davis CEO of Tasmanian Farmers and Graziers found here

Farmers fight for balanced diet

August 23, 2013

Wesfarmers, owner of the Coles supermarket chain, last week announced a $2.26 billion net profit for 2012/13, aided by Coles’ contribution of $1.53 billion, 13 per cent up on the year before.

That’s good. We want to see Australian companies making healthy profits.

However, I’m bemused by the comments made by the bosses of both Coles and Wesfarmers that, despite their Down Down, Prices are Down campaign that has seen food inflation as low as 1.1 per cent, Australians are still paying too much for our food. They intend to cut prices more.

If you look at where we stand internationally, the argument is unsustainable. In Australia, we now spend about 10 per cent of our incomes on food – which is one of the lowest levels in the world. According to a study undertaken by the Washington State University, this is less than consumers in Scandinavia, where people spend an average of 11%. In China, consumers spend 39 per cent of their earnings on food; the figure is 44 per cent in Indonesia. If you lived in Azerbaijan, you would spend 48.5 per cent of your income on food.

Even more importantly, the proportion of our income that we spend on food has continued to fall each year in Australia, whilst our average incomes have risen. According to government surveys, our proportionate spending has halved in thirty years.  People now consider to be basic essentials that previous generations could only dream of – flat screen TVs, brand new cars, overseas holidays, private school education etc etc – and that means there is less money directed to food spending.

I understand these are average figures, and some Australians are worse off than others, but we are not exactly at risk of starving, are we? At some point, we need to recognise the unalterable fact that you get what you pay for – and it is simply not possible for Australian farmers to produce safe, nutritious, quality food at ever-diminishing prices.

It’s not rocket science to work out that Australian farmers can’t defy the forces of gravity – they can’t continue to survive with increasing input costs and decreasing farm gate returns. Everyone knows that $1 per litre milk is not sustainable.  The only way retail food prices in Australia can continue to fall is if supermarkets import more and more cheap foreign products that don’t meet the standards we expect in terms of safety and quality. Is that what we want?

The Australian Competition and Consumer Commission seems to be in a constant state of scrutiny of the supermarket behaviour: whether they exercise unfair market domination for groceries and petrol, or their alleged bullying demeanour towards suppliers. Yet nobody seems to be able to address the real issue – that the Australian grocery marketplace is distorted because of the Coles and Woolworths’ duopoly. 

We all know that increased profits for the supermarkets, and cheaper food prices for consumers, come at a cost. And we all know that it is Australian farmers who end up paying these costs in food prices.

Our beef is that, at the bottom of the food supply chain, it is Australian farmers who are getting screwed on price. Studies show that, while we live in an affluent society that pays less each year for food, 86 per cent of shoppers are still driven by price.

We need a reality check here. There has to be an equitable balance between returns to farmers, the prices that retailers charge consumers, and the profits that those retailers make.

Profit is not a dirty word. It is good for Australian companies – including supermarkets – to make a profit. However, farmers run businesses too – and they should be able to expect to make a reasonable living in return for their hard work and investment.

Contact Jan Davis
0409 004 228

Dont tell me to wake the frack up

I must admit I am very bewildered by what appears to me to be very mixed messages coming out of our peak industry body Dairy Australia at the moment

According to Steve Spencer from Freshlogic (the same organisation that counts Coles as a major client ) in the Dairy Australia Horizon 2020 report it’s time we (dairy farmers/dairy industry) woke the “frack up”

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Slide 27 from Steve Spencer’s Horizon 2020 presentation at Dairy Innovators Forum in Queensland Feb 2013 See article here

According to the report the aim of the Horizon 2020 project is to also ‘raise the sights’ above short-term preoccupations which have affected industry priorities in recent years.

The report reminds us that market volatility (inputs and outputs) is a fact of life with a critical question for all parts of the industry being ‘ How to motivate people to ‘look long’ adjusting their businesses and attitudes to accept the cycles of the market and cashflow as inevitable?’

As part of Dairy Australia’s motivation strategy they are rolling out this ‘Feel Good’ campaign ‘Australian Dairy is Legendairy’

 

As an aside How I met Your Mother’s Barney Stinson would have been the ideal candidate to put a smile on this dairy farmer’s dial

Every man and his dog has widely acknowledge that the dairy industry is in crisis in all states and likewise some sections of Dairy Australia who is also rolling out Tactics for Tough Times

Like me most dairy farmers I know are not growing their businesses anymore and are doing everything in their power to rein in debt and will continue to do so until they get clear market signals there is a future for the dairy industry in this country. I believe there is but now is not the time to take risks that you can’t justify in the current climate and like Milk Maid Marian I must ask the question of Dairy Australia.

How do you plan to measure the success of your Legendairy Campaign?

Will you for example be measuring?

a. Impact on Milk sales

b. How many new entrants into the industry

c. The reduction in numbers of exits from the industry

d. Improvement in farm profitability

Now is the time Dairy Australia to lead by example. The industry is in crisis we need rigour and real on the ground capacity building not Feel Good campaigns with no measurables

Its time to be part of the big picture Dairy Australia.  Lets get fair dinkum. Lets get out of our dairy silo and have a collaborative and cohesive whole of ag sector voice.  I agree with the Australian Farm Institute, its time to promote Brand OZ and I am confident this is what our dairy farmers want too if the hits alone on this post are anything to go by

support Aussie Farmers

What sort of dairy industry do we want

This morning I woke up to yet another round of what I see as bizarre cheering from the sidelines. Articles like this NZ drought Aus dairy’s boon and headlines of a revival in the fortunes of Australian dairy farmers because our dairy friends over the Tasman are doing it tough

I just don’t get it. If the only way dairy farmers in this country can survive ( let alone prosper) is reliant on climatic disasters in other countries then I say to everyone out there, there is something seriously wrong with the supply chain model for food in this country. I can assure you the Sophie’s Choice model just isn’t working for me and I am not cheering. Survivor remorse is not an easy burden to carry

Everyday u need a farmer

Farmers so important yet so undervalued by supermarket price wars

We know the model is broken. We know there is far too much power at the top of the supply chain. Hagar Cohen and the team at ABC National Background Briefing opened the lid again on just how evil this is just last week See previous post here

As I mentioned at the bottom of this post I too spoke at length to Hagar. I was initially very wary of being interviewed for the program for a number of reasons which didn’t involve a fear of retribution. However Hagar is an absolute delight and after much consideration agreed.   In the end 99.9% of what I had to say hit the cutting room floor but I did do a day’s prep for the interview and spoke to many experts before I decided what I wanted and didn’t want to say. Today I will share with you what I had to say because the supply model is broken and farmers do need to find a completely new way of doing business with the supermarkets and we cant sit around and hope somebody else will save us.

HC – Hagar Cohen ABC National Background Briefing.

What can you tell me about the state of the dairy industry and the domestic milk market in NSW?

LS – Lynne Strong

It has been estimate farm exits are currently running at about 40 % per year. 85% of milk in NSW is sold as fresh white drinking milk so there is a heavy reliance on supermarket contracts. Approximately 45% of NSW milk is sold through supermarkets as private label or homebrand milk and the supermarkets are the ‘price makers’ in this market.

As the largest players in the market, the supermarkets have used fresh milk discounting to increase sales in other sectors of their supermarkets. And it’s working Coles profits are up 16% (1.356Billion $ pre-tax earnings)

This is about all about the whole supply chain – we are all in this together we need each other. The milk price wars are hurting everybody down the supply chain. It’s not just the farmers who are being squeezed

HC – How have the price wars affected your business (bottom line, and emotional/ psychological impact)

LS- One of the big issues now is the capacity to recover from a disaster. Take the recent floods in the north for example. These dairy farmers are more impacted than they would be normally because of the lower milk prices they are receiving. They don’t have the financial capacity to recover from the continual flooding.  They are now desperately asking the State government to help them finance the recovery. It has now become a cost to the public.

This region has had similar and severe impact from recent very sharp drought through spring and summer where farms and farm business did not have available cash surplus to feed and maintain their cows.

On top of this feed prices are up and like other farmers we had to extend our overdraft and take out loans to buy in extra feed. In our case the recent drought has meant hand feeding over 1000 cows

In fact it cost us 30% more this year to feed our cows through that period in comparison to the same time last year. Wages went up 20% I it took a lot of time to hand feed these cows.

The industry is extremely exposed at the moment. Many farms have had to lay off staff. This is increasing workload on those who stay is increasing physical and emotional stress. Repairs and maintenance are not being done; Environmental stewardship spending is falling by the wayside as farms have moved into survival mode

HC – How has your relationship with the processor changed since the milk price wars began (ability to re-negotiate contracts, quantity of milk produced, farm gate price, being paid retrospectively)

LS – I know there have been some very tense conversations between farmers and their processors. Like most Lion suppliers we have lost over 30% of our contract volume since the milk price wars have started. Our milk price per litre has dropped. There is huge uncertainty around price and what next year is going to be like. It’s hard for my son, my neighbours and others I have spoken to in the industry to plan for even one year down track.

We have had a lot of budget conversations and sleepless nights and we are not alone.  This is very destabilising when you want to invest in on farm improvements for our cows and our landscapes and it’s has been very hard on our staff

HC-  How do you feel about the ACCC inquiry, and how its outcomes may (or may not) change the dairy industry.

LS- The ACCC inquiry terms of reference have not yet defined. From a dairy industry perspective . The dairy industry moved from a regulated market to a deregulated market in 2000. We do not want to go back to a regulated market. However we are now in a deregulated market where all the power is at the top of the value chain.

This is not the how a deregulated market should work and it’s not working. This farmer/ milk processor/ supermarket relationship is a logical one and should not be abused

There is room for symbiosis here that provides for the sustainability of farm businesses, processors and the supermarkets while still providing locally produced, high quality product at affordable prices for the consumer with minimal food miles accrued.

But realistically the ACCC’s customer is the consumer. I am consumer too. It is however imperative that the ACCC considers the long- term implications of its recommendations and rulings on consumers. We know consumers want fresh, healthy cheap Australia produce and we are proud to be supplying 50,000 Australia’s with this affordable nutritious cocktail that is milk

But there is a difference between affordable or cheap milk and sustainable farm gate milk pricing. If the status quo remains I am confident no-one will win.  Realistically after all milk is a staple it’s always been affordable

Increasing urbanisation in Australia has resulted in farmers and consumers been further apart than ever before. Sadly we have lost sight of each other. Its no-one’s fault it’s just the way Australian has evolved.

And it’s not just consumers, retailers and processors too have lost sight of on farm realities. It’s time to reverse this trend

So we need a new supply model where we can all work together and have a mutual understanding of the challenges and constraints.

Dairy Connect is working to do this in NSW for dairy farmers. As part of my Bob Medal Landcare win I am working with NSW Farmers Association to create a model so all Australians farmers can learn to engage with and have an active role in the way the supply chain operates

For the dairy industry we need to look at what sort of dairy industry do we want.

What sort of dairy industry do we need?

My vision for the future is an equitable supply chain for everyone. In an ideal world the outcome of the ACCC finding would be a mandatory code of conduct that protects smaller businesses in the value chain and provides equity for everyone

A job to die for

Now here is a job for a very brave person. Lion is recruiting for a National Business Manager Dairy – Coles. Personally  I would rather be Julia Gillard constantly watching my back than take on this job that will surely lead to a stomach full of ulcers and antidepressants

National Business Manager Dairy – Coles

Would you like the opportunity to be the best you can be, really make a difference and have a great time doing it? At Lion, our success comes from Great people and Great Brands. We are Australia and New Zealand’s leading food and beverage company with great brands for every occasion.
We are currently looking for a talented National Business Manager to join our Coles team based at our Docklands site.
This role offers an exciting opportunity to join a motivated and supportive team of National Business Managers, responsible for driving above market growth in one of Australia’s largest retailers. This will be achieved through the development and implementation of strategic business plans, leveraging category insights and driving a promotional program to build our brands.
Key responsibilities include achieving volume and profit targets, managing the joint customer business plan and partnering on customer initiatives within the Coles Group. Fostering Strong customer engagement will be a key measure of success.
To be successful in this role you will enjoy being part of a collaborative team and possess a strong record of achievement in a previous senior marketing, category and/or key account management role. You will also possess:

  • strong business acumen and analytical skills
  • proven ability to successfully partner and negotiate with internal and external customers
  • strong people management and coaching skills
  • demonstrated previous key account management experience with sophisticated customers
  • significant knowledge of the FMCG environment (within a highly competitive grocery category would be welcomed)
  • relevant tertiary qualifications will be highly regarded (Marketing/Business/Commerce)

If you meet these skills and qualifications we look forward to receiving your application.