Could a farmgate 'floor price' for milk save our dairy industry?

Could re-regulating the dairy industry, through the establishment of a farmgate 'floor price' for milk, prevent Australia becoming reliant on imported dairy products.

In the words of Federal Labor's agriculture spokesman Joel Fitzgibbon the nation's dairy industry is in crisis and he fears unless action is taken quickly it will disappear.

"Unless we do something pretty soon we won't have a dairy industry in this country - producers are at crisis point and once they decide to exit the industry we will have to import milk," he said.

"I don't want to see that happen so we have to come up with a plan/mechanism to enable them to be paid a price for fresh milk that covers the cost of production.

"At the moment most producers are losing money selling their milk given the prices they are paid on-farm."

Mr Fitzgibbon has taken the bold move to suggest the industry at all levels farmers, processors and legislators investigate the feasibility of a 'floor price' for milk.

Given the problems that arose from a floor price for wool the Federal Government has condemned such a move. 

Agriculture Minister David Littleproud dismissed Labor's floor price idea as a stunt.

Not deterred by the initial response from both the Coalition and some farm industry groups Mr Fitzgibbon said the very existence of this vital industry meant it was worth looking at and finding a viable solution that will enable farmers to remain in the industry and producing the quality milk Australian consumers are used to buying.

"I haven't come out with a plan already drawn up - Labor simply wants to raise the idea and if elected have the Australian Competition and Consumer Commission assess its viability and then design a system for its implementation," he said.

"What is frustrating is the fact people opposed to the idea can't offer producers, struggling to survive, with any other options."

The farmgate price would be based on covering the cost of production in each major dairy region and be set independently.

Comparing a milk floor price to the former wool reserve price (1974-1991) that resulted in a huge stockpile of 4.7 million wool bales is unproductive according to Mr Fitzgibbon as the wool reserve was funded by grower levies whereas the milk price would be paid by processors based on production costs.

His 'floor price' epiphany came after studying the industry for five year starting from an viewpoint that the market would take care of itself and the most efficient producers would survive and prosper then coming around to the opinion that even the best in the industry can't make money given current  farmgate prices.

To explain his ideas and receive direct producer feedback Mr Fitzgibbon is spending time between now and this year's federal election talking to producers and other dairy industry representatives. 

Last week he was in the Hunter Valley at Denman where three producers out of the remaining seven have left the industry in the last 12 months. 

"We haven't had a pay rise in 18 years," said an extremely frustrated and anxious Debbie Parker who with her husband Brian produce 1.5 million litres of milk/year from their Hunter River farm .

Generational dairy farmers who love their industry and their cows and are proud of their success in producing top quality milk year in year out the Parkers are battling below production returns at the same time as a crippling drought.

"This year we will produce 1.2m litres due to the drought, and we are luckier than many because we have access to our full irrigation allocation," said Mr Parker.

In a good year - that was back in 2016 the Parkers produced 1.8 million litres from their 185 cow Illawarra and Jersey herd.

With grain costing $600/tonne but going as high as $760/t and last winter buying in seven B-double loads of oaten hay from South Australia the Parkers are desperate to see a significant lift in farmgate prices.

Saputo suppliers (Saputo bought Murray Goulburn last year) they will be paid 52.5cents/l average this year.

However, to cover the cost of their production Mr Parker estimates they would need 10c/l extra and to actually enjoy a profitable return make that an extra 15c/l.

Since de-regulation in 2000 the Parkers have constantly made management decisions to lift on-farm productivity and improve milk quality but they argue now there is nothing they can change to lower costs or boost milk production.

"Its so bad we can't afford to buy replacement equipment we just do the bare minimum repair and maintenance," said Mr Parker.

At this point Mr Fitzgibbon said if farmers had a floor price they could invest back in their farm with confidence thereby utilising the latest technology, agronomy and genetics to improve productivity.

He also commented on the arguments against a floor plan based on its impact on export prices.

"If we have an export industry that relies on farmers producing milk below cost then seriously shouldn't we consider getting out of such an industry," he said.

For the Parkers too many of their dairy friends are leaving the industry and they were keen to talk to Mr Fitzgibbon about his floor price and also keen to have the ACCC review the proposal,

Mr Fitzgibbon remains hopeful that putting the idea out for discussion the industry will adopt the move should the ACCC consider it viable.

He has received support from Dairy Connect with CEO Shaughn Morgan saying the dairy industry was in pure survival mode.

"You cannot rule anything out given our dire situation so looking at the floor price is important - it may or may not be the saviour for dairy farmers but we really need to investigate the proposal," he said.

Mr Morgan was also supportive of the announcement by the NSW Opposition Leader, Michael Daley, that a future NSW Labor Government would appoint a ‘powerful’ Dairy and Fresh Food Pricing Advocacy unit, to champion the cause of farmers, was strongly welcomed by Dairy Connect.

“The devil is in the detail and there is a need to ensure the independence of the proposed unit as well as its yet to be appointed head and it must focus clearly on strengthening its mission and ensuring it has appropriate support,." he said.

“The key role of the Advocate should be to fully implement the recommendations of the NSW Parliamentary Inquiry into the Sustainability of the NSW Dairy Industry tabled in December last year,” he said.

“The Dairy Connect submission to that inquiry considered a range of relationships, challenges and opportunities that existed up and down the value chain.

“Vitally, the Advocate would have a strong focus on the NSW dairy industry and to provide advice to Government and address the issues that they are currently facing in a quick and timely manner.

“The influence of the relationship between dairy producers and processors regarding farm-gate prices is particularly of concern because the farm-gate price paid generally is below the cost of production.”

One thing everyone in politics and the industry can agree on is the need to adopt the Mandatory Code of Practice. Bringing in a floor price and ending $1/l milk will take longer and involve more political wrangling all the while farmers battle to survive.