Open letter to Dairy Australia

Open letter to Dairy Australia


Dairy
Bernhard Lubitz: DA has not evolved over time. It is stuck in 2003 and that needs to be addressed.

Bernhard Lubitz: DA has not evolved over time. It is stuck in 2003 and that needs to be addressed.

Aa

Bernhard Lubitz's open letter to Dairy Australia, asking how and why the dairy industry has fallen into the 'doldrums'.

Aa

To David Nation and the chair of Dairy Australia,

Why is dairy industry in the doldrums? And just so we are all clear on the meaning – doldrums: a state or period of stagnation or depression.

Synonyms: Depression, melancholy, gloom, gloominess, glumness, downheartedness, dejection, despondency, dispiritedness, heavy-heartedness, heartache, unhappiness, sadness, misery, woe, dismalness, despair, pessimism, hopelessness.

This is now chronic and ongoing. Farmers are seeking answers and that all-important ingredient, leadership, with a plan for our future, a plan which has never eventuated but is responsive and dynamic with an understanding of all the pieces on the chessboard.

So how did we get here to this point?

At last year’s annual general meeting the following happened, and this was my response at that time. My main argument was:

Farmers were asking the question, why are we not profitable anymore? It was the main question from the floor at the last DA AGM. In that room, we had every mover and shaker responsible for our industry’s future and not one of them, man nor woman, stood up to tell the audience what the problem was, and to take responsibility for it. They were all silent.

It’s not the milk price as such, but the pricing models of the processors that have taken our profit margins away from us, by stealth, in the name of so-called efficiency, and so-called better and higher value product mix, which is all just a fallacy.

What did DA present as a way forward? How did they respond to the questions? They acknowledged the problem but their solution is laughable. They say we need to better educate farmers to be better business people and managers. You can educate all you like but as long as the pricing model is corrupted and broken, you will not make farmers more profitable via up-skilling. That’s why, pre-2008, we were more resilient and profitable because the pricing model was not broken and more evenly balanced for both parties’ benefit.

So Fonterra and other processors say, that by investing capital in new processing capacity to grow and support dairy farmers and the industry, they are showing their support for the long-term future of this industry. This is laughable. When they are, in fact, just demonstrating their own self-interest and totally ignoring and showing total disrespect for their farmers and supply base. We have too much underused capacity now, making our industry inefficient. Until someone, be it our leadership or the processors themselves, addresses the elephant in the room (milk pricing structures) farmers’ profitability will continue to go down the toilet along with the whole industry. So who’s talking? No one and farmers wait in vain. The silence is deafening.

DA has watched this industry decline since its inception in 2003 and, from my observations, it just keeps watching and hoping.

It’s what DA does and can do beyond the farmgate that is in question here...

It has failed to act over time to arrest this slide. Why? I don’t know, but it has failed to act or take the lead.

It had the research it compiled and released reports (e.g. Horizon 2020), seemingly doing nothing, avoiding the issue and hiding behind its charter. It has no real voice!

DA is very well funded, if not the best funded, by any industry standards, by a compulsory levy. It has the structure, capabilities and resources.

DA is our best funded and leading industry body, protected by our state industry representative organisations and the Australian Dairy Farmers.

In contrast, our other industry representative bodies are poorly funded, underresourced and chaotic at best when it comes to working together across state boundaries that are factional with ongoing bickering between them.

As our leading or peak body, DA should have done more to highlight this decline and the issues that were causing this decline, that is now more than likely going to accelerate.

I would make the point here that this levy is now fixed at the discretion of DA and until the group B members see a need for change and a vote taken. When farmers are under serious financial stress they have no option of not paying the levy or paying a reduced levy. This should be, and needs to be, discussed.

DA’s role and effort behind the farmgate is not in question here. It’s what DA does and can do beyond the farmgate that is in question here but there are some significant, if not simple enhancements, to some programs that are needed.

The focus farms DA runs are doing great things, but the information and knowledge transfer are abysmal beyond the farmers who actually participate in the support groups. This needs improving beyond the reports in The Weekly Times and How Now Gippy Cow reports etc.

We make great fanfare about our free trade deals and all the new markets they open. Well, that’s a two-way street. We are told our domestic market is growing but that growth is largely being filled by imports.

We are exporting less of our Australian production, and our production and industry is declining. Free trade deals in this environment are not benefiting our industry or making us food secure.

So what am I getting at here. “Identifies and prioritises the most important activities for the future prosperity of the industry." DA hasn’t changed since its inception, it just keeps doing what it does year in year out in various guises.

DA seems process driven - is that a good thing? I read with interest ('Hard times but a rosy future', Weekly Times August 14, 2018) and the two articles in the Australian Dairyfarmer mag ('Industry plan to deliver new strategy' and 'New farm profit and capability manager appointed').

Without being rude, it’s just the same old, same old. We are refocusing and reframing our whole-of-industry priorities, nothing new here. In reality, within the constraints of the statutory funding contract, you don’t have a lot of room to move to address the real issues regarding farm viability and profitability and that’s beyond the farmgate.

The industry has change radically over that time, both at farm level but also at processor level with the dominance of the monopoly supermarket chains. Along with the free trade agreements we have entered into, they are a double-edged sword if you have an industry that is declining or stagnant at best. They put added pressure on an underperforming or fragmented and inefficient industry.

DA has not evolved over time. It is stuck in 2003 and that needs to be addressed. You talk about a whole-of-industry plan that will drive DA’s next strategic plan.

Before that or in tandem with that whole-of-industry plan, there has to be discussion about the DA charter and what roles it should now have in this changed industry landscape. It can no longer just be an research and development provider that dabbles in other areas beyond the farmgate. What we have done up until this point is no longer working for the dairy industry, with DA in its current form and working with its current constitution.

“DA is an industry-owned national service body, funded through the dairy service levy, paid by dairy farmers and matching payments by the Australian government for research and development R&D activities. Our purpose is to drive improved levy payer profitability and promote and protect the Australian dairy industry. This is achieved through investment pre and post-farm gate R&D extension and a range of industry services including trade policy issues management and the promotion of the health benefits of dairy.”

DA has not changed since its creation but the industry has. Issues include:

  • We have processor milk payment structures that are detrimental to on-farm profitability in both the long-term and short-term and detrimental to farm system resilience.
  • The issue of milk swaps and the effects relating to milk pricing and milk supply and milk market supply competition.
  • The effects of free trade deals on domestic markets that are not functioning properly or are broken and show market failure and limit competition against imports.
  • The effects of supermarkets’ $1/litre milk and home brands on the domestic retail supply chain and the ability to pass on true cost of production costs and profit distribution through the supply chain. With no action on $1 milk and home brands you are effectively saying Queensland and northern NSW cannot be saved and will be sacrificed for the greater good of the industry. The domestic daily fresh liquid milk pool is no longer the liquid milk pool it was with defined costs and markets. The supermarkets along with processors have bastardised this milk pool. The processors now shandy or dilute it with the export commodity milk pool. The export commodity processors now dabble in the daily fresh market when it suits them, confusing and masking the costs to win supermarket contracts alongside their branded products. This artificially keeps the farm milk price flat, no matter what product is supplied to that domestic market. So unless the above changes, your C4 Milk project will be like pissing in the wind because there will be no margin over feed costs in the northern region.

These are but a few of the issues facing us. They are market failures that urgently need addressing, but DA, our industry’s most respected and resourced body, is silent on these issues.

It seeks to speak through our fragmented and bickering representative (political) bodies. This is not working and has to change. It is slow and cumbersome. It's time for some serious discussion about how DA could best evolve, to better suit the industry current dynamics that now exist.

The question remains, why the various boards and chairs have not brought this forward for discussion with farmers and government. For me, it’s a serious failure. There seem to be no big-picture thinkers or strategists on the board. The board seems issue focused -- not a good place to be.

The issue of farmer candidates for board selection also needs addressing. Farmers asked for more choice when it came to selecting candidates and voting choice with more than one candidate per position. There is very low farmer participation when it comes to voting for board positions. The candidates could virtually vote themselves in. DA highlights that the majority of farmers are members but this does not directly translate to full support of the organisation. The last levy poll burnt a lot of bridges with farmers, losing their trust and respect in the name of getting a specific outcome and not trusting members to do what would be in the best long-term interests of the industry and DA.

To stand for election, applicants must undergo a selection process overseen by a Board Selection Committee, comprised of industry representatives.

Alternatively, candidates may stand for election if their nomination is endorsed with the signatures of 100 Group A members.

The selection committee process creates a very homogeneous board with candidates being a reflection of those that went before with a lack of diversity and thinking. It seeks people that will fit into its existing culture and processes. They come via a defined industry pathway that has already instilled this culture within the DA family and its structures. The narrative surrounding the culture within DA that has evolved over time perpetuates an instilled mindset that stifles creativity and alternative ways of thinking. It does not allow for any change in the culture or deviation of what has gone before.

You give farmers an alternative pathway but it so onerous to be virtually impossible to achieve. Its beautiful in its simplicity, it’s the ultimate firewall: designed to limit and frustrate anyone trying to achieve it. It is things like this that destroys a farmer’s trust and respect of the organisation and brings about low participation.

It’s the alternative process of candidates seeking 100 votes from farmers to stand that needs addressing and changing. If you want to start to regain farmers’ trust and respect I would suggest lowering that number to 50 as a minimum but ideally it should only be 35 signatures that are required.

Even back in 2003 when there were a lot more dairy farms around it was an impossible task. Now with farm numbers declining it makes even less sense, (because I actually did it, got the 100 signatures and then stood for a position on the DA board) but throughout the whole process, I was given very little encouragement. A farmer in NZ only needs 35 signatures to stand for the Fonterra board. So I think it’s time we removed some of the hurdles for greater farmer participation. DA has now been around long enough that we finally lower the drawbridge, just a little.

Bottom line, the issues facing the industry are beyond the farm gate and DA has to change its spots to have an impact.

- Bernhard Lubitz, Leongatha, Victoria

Aa

From the front page

Sponsored by