MILK processors sourcing milk from Victoria’s northern irrigation areas may soon be forced to look elsewhere for fresh milk including South Gippsland due to the long-term contraction of the raw milk pool and increased competition.
United Dairy Farmers of Victoria (UDV) President Bernie Free said the farmgate price for milk should be $10 per kilogram of milk solids (kgMS) well above what has been offered recently.
“The base price for supermarket milk is currently $1.60/litre,” said Mr Free.
“Supermarket milk should be way above $2/litre.”
According to Mr Free Northern Victoria, Western Victoria and Gippsland are intertwined.
“All have manufacturing sites."
With milk production continuing to decline from the irrigation areas, some processors have already responded by modifying their production mix or transporting milk from alternative regions.
These shifts have been influenced by structural changes in the dairy sector including declining farm numbers, increased competition for raw milk, water availability constraints and changing market dynamics according to the UDV.
Agriculture Victoria’s latest Dairy Farm Monitor (2023/24) estimated 1,022 dairy businesses in Gippsland produce 1.9 billion litres of milk accounting for 36% of Victoria’s milk production and 22% of milk production Australia wide.
Mr Free said the more milk that goes to cities in New South Wales and Queensland the more processors will rely on milk from Gippsland.
“There is increasing pressure on farmers in South Gippsland to produce a consistent supply of milk on a flat curve throughout the year,” said Mr Free.
It is possible to do it according to Mr Free, but you need to be paid accordingly.
A recent report commissioned by Dairy Australia on the Australian Dairy Industry makes for concerning reading according to Bernie Free.
Dairy processors face multiple pressures stemming from long-term raw milk supply contracts, rising production and transport costs, market constraints, and increasing competition from both domestic and international markets.
“Processors are not prepared to pay for a flat milk supply,” said Mr Free.
Farmers providing a flat milk supply face extra costs for silage, calving in difficult times of the year, and extra pressure on their carbon footprint, according to Mr Free.
“It makes the dairy farm a much more complex operation.
“There is no reason why the price for flat milk should not be higher.”
Bernie Free said the current price of milk offered by processors is way below where milk should be valued given current export prices.
“The export market is paying more than what the domestic market is,” said Mr Free.
“Supermarkets can sell a product at a profit or a loss.
“Farmers need to be getting what that milk is sold for elsewhere,” he said.
Recent trade restrictions imposed by China on New Zealand saw an influx of New Zealand dairy imports to Australia, while declining domestic milk production has driven up farmgate prices and squeezed processor margins.
Transport costs have also escalated due to longer collection routes, rising fuel prices, and increased freight costs particularly for processors that rely on transfers of interstate milk to meet off-season demand.
Supermarkets can exercise significant control over retail pricing with low-cost dairy imports becoming more prominent in the Australian market particularly for commodity segments such as cheese and milk powder.
Processors have also been faced with labour shortages in regional areas.
An ageing workforce in both dairy farming and processing has exacerbated the problem.
Given the structural challenges facing the industry, processors are increasingly being forced to rethink their long-term business models with some already shifting towards higher value dairy products.
According to Bernie Free the returns to processors for higher value products are not being reflected in milk prices at the farmgate.
“Farmers should not be the ones that carry the can of poor negotiations in the supply chain to the supermarkets,” Mr Free said.
“We should be getting the true value of the product.”
Ongoing uncertainty surrounding milk supply has made long-term planning more difficult, and it is likely some processors will consider whether further plant closures or business restructures may be necessary in the future.