Thread: Last Dairy farm in Biggenden closes down

Woolworths and Aldi will import milk from China if they don't get there own way. It's a cut-throat business with no national loyalty or business ethics.

As hinted with in #8, there are issues with dairy farming, that are not related to $1 a litre milk. Dairy farming is a very demanding business - long hours, seven days a week.

The first point that needs to be made is that there are two quite distinct markets for milk.

#1 Fresh milk

#2 Processed milk (powdered, cheese etc)

Fresh milk has to be kept cold, handled carefully, and has a short shelf life. Processed milk has much longer shelf life, especially powdered forms, and less demanding shipping requirements.
Most milk, and hence most dairy farmers, are in the processed milk business.

Processed milk is exposed to international competition (I believe most Australian processed products are exported), so the price available to farmers selling in this market is world prices plus whatever premium is available for being Australian (e.g. there is high demand for Australian baby formula in China, a lot of Australians prefer to buy Australian cheese etc).

Historically, fresh milk was supplied by local dairies, because of the transport issues - I grew up in what is now an industrial suburb of Sydney, but was then farmland, and our milk came from a dairy a few hundered metres away, delivered daily in bulk by a horse and cart.

As refrigerated transport improved, and roads improved, these local dairies began to face competition from dairies in places that were better suited to dairy farming - typically places with plenty of water and good soil. By the 1950s this had led to a very strictly regulated market, with interstate movement of fresh milk forbidden, as state governments protected their rural voters. And in at least some states, you needed a licence from the state to produce fresh milk. This led to high milk prices and (some) very rich dairy farmers. As the difference in prices between states became more noticeable (especially Sydney/Melbourne) and complaints about restrictions on interstate trade became louder, pressure for change grew, leading to deregulation of the market (with handouts to help farmers leave).

By about 2010 there had been a big fallout, and the industry had settled down. Recently, while I don't think world prices have changed much, dairy farmers inputs have. The drought has meant that they need to buy feed, the cost of which has soared because so does everybody else. And the cost of power has also soared - dairies use a lot of power, for machinery, refrigeration etc.

The result is that especially for the relatively small subset of dairy farmers selling in the fresh milk market, costs have gone way up, and selling prices have been squeezed by the "milk wars". I suspect that a lot of this milk is sold on long term contracts that farmers signed when there was no drought and power cost a lot less. I can't imagine the supermarkets starting the milk wars without contracts for supply.

I don't know how much milk delivered to supermarkets ends up being scrapped before it is sold, but I suspect that managing to reduce this by supply chain management may be a large part of reducing the selling price, perhaps partly by making the terms of the farmers contracts less forgiving.