A SOUTH East industry leader has warned many regional dairy producers will remain on a financial knife-edge despite a lift in opening farmgate prices next season.
The majority of regional processors have announced an upward swing in prices, which is expected to help some farmers claw back some debt from this financial year.
The arrival of the $80m Union Dairy Company plant south of Penola is also helping to strengthen the sector as it chases milk supply from South East and Western Victorian producers.
This has sparked a supply war between processing heavyweights Warrnambool Cheese and Butter, Murray Goulburn, Fonterra and the region’s newest market player.
According to the Union Dairy Company yesterday, it has also shored up “a reasonable” amount of milk supply for its new milk powder factory that will start production next month.
A key industry in the South East, the dairy sector underpins around 70 producers, a number of processing factories and hundreds of jobs.
South Australian Dairyfarmers Association president John Hunt – who operates a 600 cow operation at Allendale East – said the majority of processors had announced better opening prices for next season.
He said the improved opening farmgate prices would help lift confidence and stabilise the industry after a terrible year for many farmers.
But the farmer warned opening prices were still hovering around break even margins, which would continue to put a financial strain on producers.
“Next season looks a lot better, but the processors are still keeping the opening prices down – the cost of production is around $5 a kilogram of milk solids,” Mr Hunt told The Border Watch yesterday.
“Many farmers will be trying to dig themselves out of the financial hole they dug this year … we don’t want to continue to produce milk for nothing.”
But he warned the embattled processor Murray Goulburn was well below its nearest rival, which may see some farmers move to other companies offering sweeter deals.
“On a 600 cow farm, this means $250,000 or $90,000 for a 200-head farm per year – this is a lot of money to consider,” Mr Hunt said.
He said Murray Goulburn was under pressure to announce a conservative opening price because it had the Australian Competition and Consumer Commission hovering over it after this year’s claw-backs.
“Warrnambool Cheese and Butter came out early with its $5.50 a kilogram of milk solids, which has given farmers some confidence,” the farming leader said.
Moreover, he said the opening price announced by the Union Dairy Group appeared to be in the “ballpark” of other processors.
Union Dairy Company managing director Daniel Aarons said the company’s opening price of $5.50 was “very competitive” and foreshadowed the company could have the highest price by the end season “in most circumstances”.
“Our field representatives are on the ground recruiting milk,” Mr Aarons said.
“We have secured a reasonable amount of milk.”
The company chief said he could not reveal the amount of milk secured due to commercial sensitivity.
“We are still recruiting milk, our door is open to all farmers,” Mr Aarons said.
He revealed the commissioning of the plant was ahead of schedule and 40 employees were already recruited.
Mr Aarons said the company adjusted its opening price upwards to $5.50 a kilogram of milk solids following Murray Goulburn’s opening price being so low.
He said the company had initially foreshadowed it would be the average of three processors.