There’s been a lot of heated milk talk lately.  On April 27th Murray Goulburn,  Australia’s largest milk processor, unexpectedly cut its 2015-16 milk price to farmers from around 45c a litre to 35c a litre.  The cut covered the previous ten months and meant farmers suddenly owed Murray Goulburn and average $127,000 each. New Zealand owned Fonterra, the second largest processor followed suit and suddenly half of Australia’s dairy farmers were being paid below what it cost to produce the stuff.  It’s kind of like having your boss saying that things aren’t going well so your pay’s going to be cut by 22% and by the way here’s an invoice for what you owe us for the past 10 months.

How could this happen you ask?  Over the past decade milk powder has been the iron ore of the agricultural industry, white gold some people were even calling  it.  The seemingly insatiable Chinese market foretold of an endless milk powder boom that was going to underpin high prices, if not forever then fairly close to it.  In a rush to cash in dairy farm prices went through the roof accompanied by a frenzied series of milk processor buy-outs and mergers.

The dazzling Chinese riches got the usually conservative board of farmer owned co-operative Murray Goulburn seeing dollar signs.  They hired bullish chief executive Anthony Helou on a tidy $3.2 million dollars a year to bring home the bacon (sorry for mixing food metaphors).  Helou talked global and bet the bank on selling value-added milk products into lactose deprived Asian markets at ever increasing prices. He promised something for everyone – Murray Goulburn’s 2500 farmers would receive a great milk price, shareholders would get a $90 million profit and with new processing technologies there would even be a profit from supplying Coles with its $1 per litre Homebrand.  Needless to say things didn’t go to plan. Farmers are broke, profits have crashed and Murray Goulburn’s share price has halved. Helou recently resigned, albeit $10 million richer for his 3 years work.

For 10 months before this April’s price cut there were warnings inside and outside the Co-op that the milk price was unsustainable (currently there are investigations by ASIC and the ACCC into what went wrong).  I imagine right now at all the dairy industry emergency meetings being called across the Southern states old timers are shaking their heads and dusting off sayings along the lines of, “When something sounds too good to be true it usually is.”    Even Coles, who might be feeling guilty about their part in the mess, have launched a milk line delivering a 20c a litre donation to support struggling dairy farmers, although they are benefiting from the drop in milk prices and currently buy their $1 a litre milk cheaper now than when they struck the original deal with Murray Goulburn

So what’s the story with the milk you drink from Fair Food – we have two main suppliers:

– Schulz Milk – are in the enviable and prudent position of being farmer, processor and marketer of their own milk.  With his own on-farm dairy factory and distribution Simon Schulz gets the full wholesale price for his milk and is somewhat insulated from the ups and downs of processor pricing.  Fair Food and Schulz’s other customers buy direct from the farm – Simon’s truck delivers twice a week to the warehouse.

– Demeter Bio-dynamic Milk is owned by Bio-dynamic Marketing (BD), a not-for-profit farm certifier and wholesaler.  BD have supported two biodynamic dairy farms, the Pells and the Petersens, by having their milk processed in Kyabrum. Manager Pete Podolinski says BD Marketing pay their farmers about twice the market rate for their milk and have been willing to take the occasional loss in order to bring bio-dynamic milk to the people.

Got any questions about where our food comes from and how stuff works – just ask – we’ll do our best to answer.

Have a great week

Chris