ACM optimistic about north Vic and organics

ACM optimistic about dairying in Northern Victoria and organic milk


Dairy
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ACM's Peter Jones is optimistic about dairying in northern Victoria.

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OPTIMISM: ACM's Girgarre processing facility in northern Victoria has no trouble sourcing enough milk to be efficient.

OPTIMISM: ACM's Girgarre processing facility in northern Victoria has no trouble sourcing enough milk to be efficient.

Set in the heart of northern Victoria at Girgarre near Shepparton, Australian Consolidated Milk is a young dairy processor bursting with optimism and a very clear-eyed perspective on risk.

ACM general manager, commercial, Peter Jones does not shirk from discussions about the challenges facing the dairy industry in northern Victoria.

"It's been incredibly tough and it's still tough but my sense is that there's light at the end of the tunnel," he said.

"I think the people who have managed to get through until now should be in a good position to do well, from here.

"Clearly, our milk price at $7 a kilo is a solid milk price but the issue has been more the input costs rather than the milk price.

"I think we're starting to say the signs of that abating.

"Current season grain is trading at close to $400, the same grain in the same location is trading around $320-330 and there's potential downside from that as well."

Mr Jones said the loss of milk from the north had a silver lining.

"A lot of people in now producing fodder rather than milk, so it looks like there is going to be quite a lot of hay around this year," he said.

"If you can buy in grain and hay more cheaply, that's going to take the pressure off dairy farmers to to irrigate, which will in turn take some pressure off the water markets .

"That's why I'm feeling a little bit more optimistic.

"Of course, things can change but from where we sit today, I think there's definitely some some light at the end of the tunnel and some some positive news out there."

Mr Jones said the processor was working hard to minimise risk for its suppliers and customers.

"I guess the philosophy behind the company was that we really felt that the volatility in markets was really apparent and becoming more apparent, had the potential to really negatively affect the dairy farmer," he said.

"On the flip side, it also has negative effects on the manufacturers and the processors.

"So we tried to work on a model where our price was the most stable, and and gave our suppliers a bit more certainty.

"Because a lot of our milk is contracted over a reasonable period of time, we can go out with a very strong opening guaranteed price.

"We've consistently outperformed the market I think over the last 12 years.

"There's only been one year that we've been behind, which was '13/14 when the market took off due to surging demand in China.

"Because our risk management was in place, we couldn't follow the market all the way up but the next year we were well ahead and, when the market dropped away, our suppliers were well protected.

"Stable pricing appeals not only to our suppliers but also to our customers."

Mr Jones said ACM had no regrets about opening a new processing factory in northern Victoria.

"The north of the state is our biggest largest milk pool and and while the environmental conditions are making it difficult in the north, we felt that the North was the best place for us," he said.

"Generally, when the market is a bit more stable and the profitability is there for dairy farmers, the north is very well suited because the milk supply in northern Victoria is a little bit flatter than in Gippsland and Western Victoria.

"It means we will get a much greater asset utilisation in the north than we would be able to achieve in the west and the east.

"About 30 per cent of our milk is in Gippsland and about 30pc of our milk is in Western Victoria, and about 40pc of our milk is in northern Victoria.

"That gives us good geographic spread against potential environmental hardships like drought in various locations, which again allows our milk pool to be relatively stable."

ACM forecasts it will manage around 560 million litres this year, of which 150 million will be processed in its Girgarre facility.

Around 35 million litres is organic and rather than attempting to compete with larger processors, Girgarre specialises in small runs of specialty products.

Mr Jones expected the organic proportion of the milk pool would eventually sit at 5-10pc of the total throughput.

"For us, size is not the important thing, it's what we can do in the market to support our suppliers because we came from farming and so the health of the dairy farmer and the health of the dairy industry is what drives us," he said.

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