Uncategorized

The Difference is in the Detail

Over the last few days, New Zealand based Fonterra lifted its forecast milk
payout for the second time. On Wednesday the estimated Farmgate price was boosted by a further 50 NZ cents to $NZ5.25, while the company maintained
its dividend payout to farmers resulting in a total amount of $NZ5.75 to $NZ5.85 per kilogram.

Australian companies are between 10 – 20 per cent below New Zealand’s latest forecast.

While Fonterra’s announcement follows the increased global dairy prices at the Global Dairy Trade auctions, Australian farmers are still waiting for theirs.
Although there are any number of reasons why we are behind New Zealand, it still makes for an interesting conundrum when Australia has a bigger domestic
market and yet our prices remain unadventurously low.

This really highlights how volatile the world milk price is and why we need regular, clear and realistic market signals in Australia.

By establishing a commodity milk price index tool there will be greater transparency to allow farmers to make their own assessments on milk price forecasts.
Farmers will be able to better balance risk along the dairy supply chain, especially when it comes to managing the effects of world milk prices.

New Zealand already has a milk price index and it works quite well, as they have over 90 per cent exports, and can set themselves against the world market.

In Australia we have a 65 per cent domestic market and a different export commodity mix which should deliver a higher price for Australian farmers than
the New Zealand price in a low commodity market as we are in now. Therefore, Australia needs to have an independent commodity index rather than use
New Zealand’s due to our different export commodity mix.

ADF has had extensive discussions with government on the proposed index and we are looking forward to help shaping this important tool. It’s vital we get
this right so all farmers have the ability to use the global information to assist them when they negotiate supply contracts with processors.

The index needs to be independent and transparent with easily accessible data that isn’t hard or complicated to use. It needs to be updated daily to capture
the latest market intelligence from around the world and should translate commodity market and currency trends back to Farmgate prices across Australia.
The index should also deliver a forward-looking price indicator to capture restored certainty and decision-making resulting in improved farmer confidence,
better on-farm investment decisions, and ultimately higher farm profitability.

We have no doubt that our processors will increase their milk price forecast which is why we support the index and want to ensure it is a true indicator
of commodity prices and meets the requirements of the Australian dairy industry as a whole.

The index will also give farmers the tool to better understand the impacts of world market trends and to be better armed with questions of the company
they supply.

David Basham

Acting ADF President

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