Dairy Invest, Is more milk good for farmers? By Steve Hossen, courtesy FARMWEST News

Agricultural consultant Steve Hossen recently gave a presentation on what he thought about Dairy Invest and the industry plan to grow milk supply. By popular demand it is reprinted in here.
Dairy Invest - is more milk in WA good for farmers?
That’s a question I get asked.
Some farmers say to me:
“Dairy Invest = more milk = no shortage = no price premium = no profit = Dairy Invest is no good.”
“A milk shortage is good - it means I’ll get paid more.”
“More milk in WA means the price will be watered down, I’ll get paid less.”
“There aren’t enough cows in the State to produce more anyway.”
“I hear about corporate farms, they’re no good, corporates don’t have a long term view.”
“I don’t want to milk more cows … there’s nothing in it for me.”
Is it true?
Let’s have a look -
“Less Milk = More Money”
1. Some think we can shrink our way to prosperity - the Queensland industry’s already done it, demand is greater than supply and despite a high price there is little growth AND farmers are watching those trucks roll across the border to fill up demand - it’s the thin edge of the wedge.
2. Farms lose the ability to grow - many farmers grow their business (sons and daughters to come home etc). If the market doesn’t grow too, there’s no room. The “growers” get bigger, the small guys get pushed out.
3. Less milk = milk factories losing throughput, they drop least profitable processing lines, lose scale efficiency and don’t reinvest.
4. Good money for now but no future for farmers. Service providers or factories have no opportunity to run profitable businesses.
‘Red Sky’ has shown us that WA has a competitive cost of production compared to Victoria and NZ with the advantage of a flat supply pattern; this gives us a huge advantage in capturing
Dairy Invest
Is more milk in WA good for farmers?
Steve Hossennew sustainable high price markets. The supply basis for WA growth is solid … unlike other states.
“A milk shortage is good - it means I’ll get paid more”
1. Pre-deregulation manufacturing milk was always a low price. Traditionally product was processed in Brunswick, Boyanup or Capel. Old, low throughput plants returned a low farmgate price. Remember cheese milk or over contract milk -13-17 cents per litre. Post-deregulation all milk was affected - without regulation those low price litres flooded the market place with nowhere to go = diluting the price.
So what’s different now?
1. An extra 85 million litres only gets us to what WA produced seven years ago - no more.
2. 85ML of extra milk determined by industry is calculated. Processors have worked out exactly what they need to justify and sustain their business investment in WA.
3. There is significant new product development and the realisation that SE Asia really is part of our growing domestic market. We can get high return product there quickly.
4. Industry recognises it needs to self manage growth. This will be vital.
* Delivery Right Units (DRU) within the Challenge Co-Op - takes in only as much milk as they have markets for.
* NFL manage milk supply via contracts.
* HF and Fonterra need a management program - have started with contracts.
Upgraded manufacturing facilities = higher value products.
The ability to meet niche markets = better farmgate returns.
“There aren’t enough cows in the State to produce more anyway”
1. 100 cows have 40-45 heifers per year. Assuming 25-30 cows per 100 are culled each year and 10% of heifers are empty. State herd could double in seven years!
2. WA could breed enough heifers if:
* Beef bull is not used in the herd - dairy bulls only.
* Sexed semen used on heifers, will give extra numbers for milking or selling.
* The export market for heifers will still be there - as long as they compete on price. A great opportunity for farmers to increase income.
“Corporate farms - why consider them?”
1. 85ML = 12,000 cows = $100m capital - that’s a lot of $$$ to find. With global food shortages and financial stockmarket risk - investors are now seriously considering soft commodities as a safe long term investment .
2. Corporates bring skills and pointy attitude that can benefit the whole industry -
* They seek long term supply/price contracts.
* Tight focus on what is core business and what can be outsourced.
* Strict performance hurdles, problems corrected quickly.
* New ways of doing things, funding, job descriptions, people management.
The facts: The backbone of the industry is still the family farm and extra milk can flow from many sources -
* From existing herds (feeding, fertiliser).
* Extra cows from existing farms (Plus15).
* Re-starting closed dairies.
* Making use of beef land, leasing, agisting.
* Beef conversions.
* Feedlot conversions.
“I don’t want to milk more cows … there’s nothing in it for me”
1. There is a wide range of opportunities
* Leasing or sharefarming, great proposals when the infrastructure is good - spreads the $$$, the risk AND the workload, gets young people into farming.
* Give up milking but stay in dairy - heifer rearing, agistment, fertiliser application, calf rearing. There is room for specialists. Let’s capture the skills of those “non milkers”.
* Different management models are available. They are based on working together in formal partnerships to build wealth and assets.
So is more milk in WA good for farmers?
1. Shrinking our way to prosperity is not real - it is short term and will drive out many farmers.
2. The opportunities are real on many levels (industry level to individual farm business).
3. Our skills are excellent for future growth (efficiency and competitiveness).
4. Specialisation can go to a new level (beef is not the best alternative, use those ex-dairy assets to create real money).
As an industry we can be smart about growth and only tackle what can make us prosper. That’s what Dairy Invest is about, processors and farmers working together to build a future.
Are Government and industry and farmers excited about the future - you bet!

Courtesy of Farm West News

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