Pulling back the curtain on milk price – as seen in The Weekly Times

For the dairy industry to be profitable and sustainable in the future, all players in the dairy supply chain must work together effectively. Trust, transparency and unity are critical to making this happen.

Australia’s dairy processors are being regularly requested to announce step-ups in farmgate milk price (FMP). In recent weeks, we’ve seen the discussion become divisive and now is the time to present the facts about milk price and have a conversation based on dairy economics.

We are calling on commentators to examine the detail behind what drives milk price so that we can have a robust dialogue about the appropriateness of a step-up.

As the peak body of the post-farmgate sector of the dairy industry, we do not have any special insights into what the future FMP may be. There may or may not be a step-up in the pipeline – that is a commercial decision for each processor that is well outside our remit.

What we do have insight into, is the economic fundamentals that influence the value of milk. Our concerted contribution to transparency around milk price is why the Milk Value Portal (MVP) was created in 2020. This aggregates raw data from processors by region, farm size and seasonality of supply, along with key market insights and historical perspectives.

The fact that we are currently experiencing the highest levels of profitability in dairy farming in many years is a welcome turn of events for the industry – high prices and good (or better) seasonal conditions are a wonderful remedy.

The step-ups by two processors – of less than 1 cpl annualised – are terrific for their suppliers but could be considered exceptions. Both operate in domestic niche markets, are less exposed to commodities and import competition than many, and COVID has moved demand from Food Service to Retail. It is important to remember processors do not operate equally in the same space.

As the MVP reports, since FY21 FMP was announced on 1 June 2020, the Commodity Milk Value has been in dramatic decline with price recovery only in January taking it to where it is now – still four per cent lower than on 25 May 2020. Certainly not the buoyant market that facilitates a step-up.

Increases in the GDT Price Index are welcome but due to being in USD do not necessarily translate into FMP, which is in AUD. The exchange rate between AUD and USD is a key ingredient in the value of raw milk. We are regularly told we are a trading nation and while we are proud of our export capability, imports increasingly influence FMP.

To learn more about the factors that influence the FMP, I encourage all readers to visit milkvalue.com.au.

Originally appeared in The Weekly Times.