I spent today in Harvey, talking with dairy farmers, dairy farmers have been all over the news in Australia lately, with major dairy producers Murray Goulburn and Fonterra engaging in some pretty shady business practices. What were these shady business practices? Well, in typical liberalist economic manner there was a supply/demand issue; MG and Fonterra overestimated on international demand for milk and dairy products. In particular Fonterra is in pretty big shit; Fonterra a company centred in New Zealand provides 35% of the world milk and to cope with oversupply the company has decided to retroactively modify the amount paid to farmers.
Fonterra is essentially saying that they “overpaid” farmers and now they want the money back, despite the fact that the only argument in favour of the “overpaid” reasoning is that they though international buyers would want more than they did. Fonterra are being dicks and out of loyalty to New Zealand’s farmers are salvaging Kiwi farms while leaving Australian farms out to dry. MG is in a similar situation; they supply 30% of Australia’s milk and while a significantly smaller player globally than Fonterra, they’re still pulling in large amounts of revenue and claiming overpayment in the same fashion. Most of this is affecting farmers in the Eastern States, but Western Australia is now facing its own dairy crisis; the global demand drop has meant the three major WA milk producers (Brownes, Harvey Fresh, Mundella Foods and Bannister Downs) are ditching farmers.
So far Brownes has announced that four key dairy farms will not have their contracts renewed to put emphasis on this just one of the four farms produces 3 million litres of milk annually. Western Australia produces approximately 377 million litres a year and while 3 million mightn’t seem like a huge chunk in that we’re only talking about a single farm that’s been completely ditched. Brownes are yet to announce how many contracts will be renegotiated for smaller supply numbers but the reality is WA could see its dairy production rate drop to less than half its previous rate given that the ditched farmers cannot find any buyers for their excess supply.
So the question becomes, what caused this? The easy answer is to blame poor administrative process; it’s no secret that Fonterra’s milk prices are determined by a match agreement with MG, so when MG lowered their prices Fonterra had full legal rights to do the same. On a global scale though other things have gone wrong; the European Union removed regulations that put a cap on milk supply, meaning European buyers are no longer reliant on international trade. Russia actually plays a fairly big role in this situation as well; after the 2014 annexation of Crimea the European Union launched a number of sanctions against Russia, in return Russia put out a sanction of their own prohibiting the import of EU milk, which hurt the UK in particular. The European Union’s decision to lower demand from Australian and New Zealand came about as a reaction, the EU no longer needed to replenish supplies via international trade, instead offsetting the balance by concentrating their own supply on their domestic markets. I’m not going to say “it’s Russia’s fault” but certainly the Russia-EU tensions over the last few years have impacted the global dairy trade.
The final nail in the coffin is China. China buys everything, but in the 2014-2015 financial year China bought too much milk. As a result the 2015-2016 financial year has seem a rapid decline in Chinese demand due to overstocked inventory, this in turn means that Australian & New Zealand producers haven’t been able to sell the amount of milk they had banked on which comes back directly to hit farmers. This lack of global demand has hit across the country and is likely to see Australian milk numbers drop to as low as a third of current production levels.
What we’re seeing here is the failure of global liberalisation; the multinational dairy trade doesn’t take political conflict into consideration when making financial predictions. Realistically the issues between Russia and the EU should’ve been seen from a mile away; they’ve been at each other’s proverbial throats for two years now, in addition it didn’t help Australia when former Prime Minister Abbott did his best to piss of the Russian President Vladimir Putin because that got Australian industries a one way trip to the banned list next to the EU and USA. Overreliance on international trade has quite possibly destroyed Australia’s dairy industry, so what can you as a consumer do? On Channel 10’s The Project, Waleed Aly suggested buying locally owned dairy products for full price and that’s a good start.
There is however more that we as consumers can do and interestingly enough the answer is demand. Demand a fairer industry; demand that major companies like Wesfarmers and Woolworths be blocked by consumer protection laws from offering discount $1 milk. Demand that ministers for agriculture, like our current minister Barnaby Joyce actually perform the duties they were elected to do and protect the agricultural industry. Above all else demand changes to legislation that allowed this to happen; major dairy producers shouldn’t legally have the power to change their minds on how much they’re going to pay retroactively, what they need to do is refocus their economic vision on a domestic first operating method. It might sound a tad nationalistic and/or protectionist and it should, because it is. You can praise “free” trade for all the world to hear, but FAIR trade is a much better alternative; refocusing on a domestic market might mean a drop in overall profit but ask yourself, would you rather China have to pay more for our milk or would you rather our farmers be paid less and watch our agricultural sector die? Buy locally owned products, buy them full price and don’t stop there contact your State and Federal MP’s, contact your Senators and contact the ACCC, demand a fair resolution for the Australian dairy industry because if we don’t act now there won’t be a later.