Dairy farmers are furious with some claiming Fonterra’s “unfair” milk price cut has left them tens and in some cases hundreds of thousands of dollars in the red.
One such farmer is David Conheady, who farms with his family at Noorat, in the state’s south-west. They milk 350 autumn calving cows on a dryland farm. Right as the calves are dropping, they have been hit with a significant price reduction and claw-back policy by the processor they supply, Fonterra.
“We’ve been hit by a significant price reduction at the time of year when production is the highest,” Mr Conheady said.
On Thursday, Fonterra Australia announced a revision to its farmgate milk price from $5.60 per kilogram of milk solids (kg MS) to $5/kg MS for the 2015-16 season. A step down with just two months remaining of current season means it will “claw back” money from its suppliers that it had paid out calculated on the earlier, higher price.
It will do this by paying a heavily reduced price for the remaining two months of the season to balance out the annual year cheque to the now $5/kg MS price.
Mr Conheady said it meant before the price downgrade, the family were going to be paid $6.05 (per kilogram of milk solids) for milk produced in June and paid for in July.
“It’s now back to $1.91/kg MS if we don’t accept the loan from Fonterra,” he said.
Fonterra Australia is also offering its suppliers an interest-bearing support loan of up to 60c per kg MS that is linked to a supply commitment and is repayable, with interest, from FY18.
“But it means if we accept the loan, we’ll take on $105,000 of debt and be locked into supplying Fonterra for another four years or until the debt is repaid.
“And we’ve already spent the money and done our income and budget estimates – in the last half of the lactation we’ve spent on re-seeding, fertilising and buying in feed to set up our season going into winter, so that we can make money in May to August.
“Without the loan we can’t survive – our cost of production is $5.26/kg MS.”
He said he had two options – supply milk to another processor although many were reportedly full-up on supply, or take on the loan.
“We don’t have a choice, we’ll be feeding and milking our cows at a $3/kg MS loss for two months,” he said.
“If we get through this it will be a struggle. We’ll be in a three to four year cycle in which we cannot weather a poor season.”
Fonterra’s cut came a week after Australia's biggest milk processor Murray Goulburn reduced farmer payments from $5.60 to $4.75-5 in the wake of a steep profit downgrade.
Mr Conheady said it was a slap in the face that Fonterra had waited so long into the season and had the gall to have a statement on its international website that the policy meant its New Zealand shareholders could “recoup” funds from its Australian suppliers.
“We’ve done everything the industry has asked – we’ve bought more land, we milk more cows, we produce more milk, we produce off-peak, and now it seems we’ve been hit the hardest.”
The fourth generation farmer said he had defended Fonterra has a forum delegate representing the former Bonlac suppliers and now he “feels the fool”.
He said the statement from these two major processors would cripple many farm businesses, particularly young people who had taken on large debt.
The New Zealand company will attempt to cushion the blow, offering loans of up to 60 cents a kilogram. But Fonterra's Australian managing director Judith Swales said it was still a "horrendous situation for everyone concerned".
Ms Swales said although Fonterra had been warning its suppliers to be cautious and conservative with budgets this season, it could have done more.
"What the most important thing is here, for the whole industry, is around the price signals and having a more transparent model as to what is impacting the milk price," Ms Swales said.
"If I reflect, I would say maybe we should have driven that harder this season.
"We are well placed as a global leader in dairy to tap into the signals that are coming from the market. That is one thing we will be looking to do better next season. We will try to give all farmers clearer signals about what is happening."
Fonterra could not cut the price sooner because it was obliged under its Bonlac supply agreement to meet the benchmark price.
Mr Conheady said farmers were irate and their fury would be evident at a Farmer Power meeting at the Terang Civic Hall on Wednesday night.
