The two biggest milk processors in Australia, Fonterra and Murray Goulburn, recently announced a severe cut to the price paid for farmgate milk. This was a huge blow to the thousands of dairy farmers who supply to them.
Murray Goulburn slashed its price from $5.60 a kilo of milk solids to between $4.75 and $5.00 a kilo in late April. A week later their main rival Fonterra followed suit, dropping prices to $1.91 a kilo for the next two months, far below the cost of production for farmers.
These prices are all backdated and will be applied for the entire financial year. This means that the processors consider that they were “overpaying” the farmers during the year and they are now forcing them to pay back the debts. For many farmers these debts are hundreds of thousands of dollars!
The timing of the price cut, at the end of the financial year, has enraged farmers. There have been stories of farmers who have had to apply for Centrelink emergency food payments while others are seeking mental health counselling. Some have decided to close their farms and leave the dairy industry for good. Many of those who have stayed have already lost future productive capacity by ‘drying off’ or selling cows.
The situation is made worse by the predatory practices of the major supermarket chains – Coles, owned by Wesfarmers, and Woolworths. These conglomerates have been deliberately keeping the price of their own brands of milk low for four years.
The major supermarkets have used their duopoly and the fact that milk is perishable to keep the supply at $1 a litre. This price is much cheaper than bottled water and as a result they have boosted the sales of their own branded milk immensely. In short they have generated handsome profits at the expense of farmers. Ordinary people have started to boycott supermarket-brand milk in response, but as the economy worsens not everyone will be able to continue with this.
While there are a number of factors that contribute to this debacle, the underlying cause is the downturn of milk prices on the international market. Global dairy prices have fallen around 60% since early 2014 and they are unlikely to improve anytime soon.
This is due to the overproduction of goods in the dairy industry on a global scale. The hope that the middle class in China will grow and consume ever more dairy products has not been realised, especially after recent stock market crashes and signs the entire Chinese economy is slowing down.
The Russian embargo on western dairy exporters due to the conflict in Ukraine has also contributed to the low price of milk. There is no doubt that farmers are shouldering the burden of a crisis that was not of their making. Unfortunately neither of the major parties has any viable solutions.
The Liberals have proposed a 50 cent milk levy. Such a levy only increases costs for ordinary consumers while not having any significant impact on the situation facing farmers. While the levy would give farmers an extra 12 cents per litre it would not apply to other dairy products, or exported products. These products make up around 90% of sales.
Labor, while not supporting the levy, has suggested offering concessional loan packages to dairy farmers. In Victoria alone this would cost more than $11 million. Although the loans would have low interest rates, farmers would still be forced to pay exorbitant debts back to the big milk processors.
Neither struggling small farmers, nor ordinary consumers, should be forced to carry the burden of this crisis while the big milk processors and the major supermarket chains continue to rake in billions of dollars. Murray Goulburn alone paid $40 million of profit in dividends to its investors while the two big supermarket giants combined make nearly $5 billion of profit per year!
As long as the multi-billion dollar dairy industry is run for profit, rather than human need, small producers and consumers will continue to lose out. The only way to create an equitable situation is to remove the profit motive from the industry and run it for the public good.
This can be done by bringing the big milk processors and the major supermarket chains into public hands and under democratic control. With these levers production can be planned democratically. Committees of workers, farmers and consumers can decide how the wealth created is shared instead of these decisions being made by predatory big business supermarket chains and processors, and everyone throughout the supply chain can be guaranteed a living.
By Tim Tran