The dairy industry has had a significant shakeup over the last 2 years with most farmers saying that they have had enough of the imbalance of power, unfair contractual arrangements and unsustainable farmgate pricing.
It’s fair to say that change has has been a long time coming and that farmers have put up with a lot more than most business owners would accept.
One of the key shifts that we are seeing is farmers moving away from long term relationships with their processors.
Loyalty to a processor has been a big part of the Australian dairy industry and is often generations old. This loyalty was based on a time when the industry was predominantly run and owned by milk co-operatives. As those co-operatives were sold to foreign companies, farmers more often than not, stayed with the brand through the transition.
Like so many things today, loyalty is not a given; it needs to be earned. Until quite recently, most processors assumed that their dairy farmers would remain loyal, would accept less than fair terms and would not seek a better deal.
The collapse of Murray Goulburn in 2016 and the resulting fallout was a necessary wake up call for farmers to re-evaluate their relationship with their processor.
Farmers felt they could no longer trust that their long-term business partner, the processor, would do right by them. It signalled the end of old-fashioned business relationships built solely on mutual trust and respect.
The ongoing drought in Queensland continues to drive higher production costs and lower than average milk production has led farmers to look at the pros and cons of their relationship with their current processor.
With some smaller processors offering over 70c/pl in order to secure enough milk to meet their contractual agreements, it is little wonder that blind loyalty is dead.
While the farmgate price being paid for milk is not the only factor that farmers should be considering when they evaluate their existing contract, it should be the starting point for negotiations. If processors are not prepared to discuss more equitable terms, then farmers should certainly be looking elsewhere.
Today’s business world is all about profitability and there is nothing inherently wrong with that. What we as farmers need to accept is that loyalty has very little value in this environment. Our relationships with our processors need to be based on fair pricing and good terms not on whether our predecessors liked or trusted the company they dealt with.
QDO President – Brian Tessmann