In rural Victoria and Southern NSW there is the beginnings of a cry to arms. But without understanding the issue Australia is on the cusp of accelerating the poor vs rich divide and sliding into a corporate wealth and citizen slave economy. Through the media over the last few weeks we have all heard about the Farm milk crisis, but do we understand how it came about that Fonterra dropped their Farm Gate milk price?
Farms within southern Australia have traditionally been small family operations with a couple of thousand acres, Dairy farms as a subset of this have been and still are small herds with farms employing between 2 and 4 people. With this size operation processing milk has changed enormously since the days of fetching a pail from the neighbour. No one farm can afford to purchase and run a milk processing plant, however a geographically linked group of like-minded farmers can band together and build a co-op. Then the Co-op might grow and merge with other Co-ops this is how Australia’s Largest milk processor Murray-Goulbourn came about.
Murray-Goulbourn then decided on a strategic path of growth into the Asian markets, to do this they needed more processing facilities and all the co-opted farmers couldn’t stump up the cash, so it was decided that they would ask investors, to help out. They tried to protect the farmers with conditions regarding the profit margins eating into the price paid for the raw product (Farm Gate Milk Price). This was all very ambitious and some of the strategy and goals sold to the investors didn’t take into account Asian and global market risks. Basically the price of a product on a global market is different to the price within local markets. The calculation kinda goes like this Cost to produce the product + profit margin = Price to consumer however when the consumer can’t afford to pay the end price, the profit margin drops but what happens when the profit margin can’t drop any further and the product is already being produced. The payment back to the producer becomes less than the cost to produce the product, Farm Gate Milk price dropped.
When the global financial crisis happened Australia came out on top, this meant our money and products cost more in other economies, Asia’s economy hasn’t bounced back in a timely manner. This means Murray-Goulbourn had two choices; turn the lights out and default on investors and farmers or drop the Farm Gate Milk price. When the largest milk processor drops the FGM price there is a knock on effect to the other processors, they look to the largest operator to help understand the market value. Fonterra panicked, and retrospectively dropped the milk price. This meant farmers for a couple of months payments prior to May had to return money and would be paid less going forwards. Farming isn’t a cash business where you are able to quickly access cash. Farmers can’t drop down to cash-converters and sell a tractor. Therefore they need to look at what is costing them more to keep than to sell, the farmer starts searching the farm and sees his cows. Calls the local abattoir operator and books a truck for that afternoon.
This is how we ended up in this mess but how do we help the farmers out, how do we build in a safe guard? I don't have any answers but here are some options to think about:
- In good years build a levy and invest the funds into other markets.
- Encourage primary production diversification to soften the fall for farmers for example grow crops or breed other animals. - Support other industries in rural areas such as manufacturing to stimulate the rural economy, by building manufacturing plants in small towns it allows farmers to have off farm incomes.
These are long term Government changes that need to be put into place how can we the city folk help?
- Pay extra for our local milk.
- Donate to a kick starter.
- Push our big supermarket chains to pay a higher price at the Farm Gate.
