Fair, profitable milk price for smaller, seasonal dairy farms

South West Dairy Limited (SW Dairy) is a company with a constitution that director Duncan Morris and chair Brad Couch said enshrined cooperative principles.

Farmer-suppliers would need to purchase 10,000 shares at $1 each and there would be regular board elections.

It's also about giving farmers a fair go but that was where the similarities with the great dairy cooperatives of old like Murray Goulburn ended.

"We want to learn from past mistakes so we're setting this up to be as robust as we possibly can so that the same mistakes can't be made," Mr Couch said.

There will be no dividend for shareholders.

Instead, profits would be returned in the milk price.

Eventually, SW Dairy could use a share off-take or raise capital with partners to invest in stainless steel but such a move would be decided by shareholder vote.

In any event, the founding directors are certain of equality among shareholders, something they hope will also protect SW Dairy.

"There cannot be any cast-iron guarantees that someone couldn't take control," Mr Morris, who is a former MG director, said.

"What can't happen is big farmers coming in and taking it over because they'll get one vote per farm, not one vote per share.

"There's also the same milk price for every member, which is cast in stone in the constitution."

The objective of the SW Dairy group was not to achieve the highest milk price but the best one for smaller and seasonal farmers.

"Our focus is profitability on farm," Mr Couch said.

"The current structure of the pricing models by the major processors is discouraging profitability on farm because it's discounting those spring months.

"So we're not actually looking for an advantage.

"Seasonal dairy farmers and smaller farmers are not achieving the weighted average quoted price.

"Our short-term goal is to get the weighted average price that they're quoting paid flat across the season to all our members.

"We want to put our destiny back in our hands again."

SW Dairy would eventually own processing facilities.

"Certainly we do have ambitions to own a processing facility in the longer term, that is part of our strategy," Mr Couch said.

"If we want better returns and better control of our own destiny, that's the place we need to be.

"Whether it be farmer owned fully or with a with a joint venture with some other like minded party, we're open to those suggestions going forward."

But first, the focus had to be on gathering enough momentum.

Mr Morris said a group had been working on the SW Dairy concept for about two-and-a-half years.

"We have previously collected some funds off about 20 farmers who, at that stage, had about 34 million litres of milk," Mr Morris said.

"That core group gave us the confidence to move forward and kick this off."

South West Dairy Limited chair Brad Couch felt the principles of cooperation remained important to the dairy industry, despite the sale of Murray Goulburn.

"In the short term, we just want to see how many like-minded farmers are out there, we think there's a few," Mr Couch said.

"We want people that abide by the same principles.

"I guess we're getting the feelers out there.

"We're seeing how much fragmentation there is and appetite for positive change, to put the focus back on profitability and working together.

"We can all work together to achieve a common goal.

"We want to to ensure a viable and sustainable dairy industry.

"And we want to encourage young younger leaders into the industry to pass the baton on."

The other immediate challenge for the embryonic SW Dairy will be to find a suitable processor.

"Initially, the major hurdle will be to get one of the major processors to take the milk on the terms that we're asking," Mr Morris said.

"But if we've got control of a nice pool of milk, you would have thought it would be attractive to someone given how far in decline the dairy industry is.

"Dairy farming in the southwest is in serious decline, as well as everywhere else.

"If we can make it work for young family farmers, they'll act as a beacon to others that are currently not perhaps considering dairy as a long-term option."