MORE than $330 million will be lost from the south-west economy and up to 850 jobs in the next year because of the dairy industry crisis.
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That’s the grim picture Great South Coast Group chairman Colin Ryan paints.
“It’s not just our farmers who are doing it tough at the moment – it’s other businesses who service the dairy industry,” Cr Ryan said.
He said the milk price crisis would see farmers lose an estimated $133 million.
“It’s our understanding that we will lose around $336 million from our regional economy over the coming year,” he said. “That’s a huge blow for us all.”
He said the dairy industry employed more than 6000 people, heightening the need for wide-ranging support for farmers.
How and why is such an important industry facing such dark times?:
- Milk processors set the price they will pay for milk solids per kilo every year.
- This price is based on the demand of both domestic and international markets and allows farmers to budget their finances accordingly. If less people buy dairy products, less money is made.
- Murray Goulburn owns more than 40 per cent of Australia’s dairy market and sets the benchmark milk price.
- Fonterra is the world’s biggest dairy processor and guarantees to match Murray Goulburn’s price.
- At the beginning of last financial year, Murray Goulburn set the price of milk solids at $5.60/kg.
- The global demand for milk was declining and sources said $5.60 would be too much.
- As anticipated, Murray Goulburn found it was operating at a loss in April and said it should have been paying between $4.75 and $5/kg.
- To recoup 10 months of losses, Murray Goulburn lowered the base price of its milk for three years.
Naringal farmer Hayden Ballinger said the changes in price came with working in a global market.
“It’s great when global commodities are high but it poses a risk when prices drop,” he said.
Fonterra announced it would mirror those price cuts on May 5 with an intention to ‘clawback’ its losses in a much shorter time-frame of two months. This has affected those that produce more milk in May and June.
Fonterra’s payments of $1.91/kg will result in farmers operating at a great loss and has been the cause of wide-spread outrage.
“South-west farmers’ average production costs are $5.03 to $5.36 per kilo,” Mr Ballinger said. “And it’s already been a difficult year.”
Last week Fonterra offered to increase payments to $4.25 for July/August supplies to compensate heavy losses in May and June.
The increase will be balanced through 19-cent cuts to its base milk price over 12 months. While changes to price are quite common in the industry, Mr Ballinger said the late cut had damaged the confidence and trust going forward.
