FARMER ownership in milk processing is the only way to ensure a good price, says ROMA BRITNELL

Last year, I was awarded a bursary to have a critical look at the dairy farmer's ability to retain profit from each litre of milk produced. 

There is much confusion about this topic. I have found it challenging to keep the discussion focused on the goal of obtaining a greater share of profit for farmers - a situation we all want.

My project was to look at the current trends of farmer control after milk leaves the farm.

What does the future look like as a result of the downward trend of farmer ownership of milk factories, distribution and brands?

Ten years ago, 90 per cent of what Australian dairy farmers produced was processed by farmer-owned processing plants - today the figure is closer to 35 per cent.

My project is about understanding if a further reduction would result in less benefit for farmers.

It is claimed that competition for milk at the farmgate is healthy. In the long-term, competition is mainly beneficial if you are a consumer.

When the airlines had more players enter the markets, it became good for consumers because we could buy cheaper flights, but did it help those businesses selling services to the airline companies?

If anything, they are more squeezed on price as the airlines try to reduce their costs.

Remember, as dairy farmers we are suppliers of inputs.

We are not consumers. Farmers as suppliers of inputs will only see the benefit if they retain influence in processor decisions and set the price in Australia - which will mainly be a reflection of the international price.

This is true for all the traded food and fibre products including dairy, beef, wool and grain.

Other industries would do just about anything to have a share of profits from the supply chain the way dairy farmers still have.

Companies that are not owned by farmers will seek to minimise the cost of their inputs - that is their job as directors and managers.

Without farmers as price influencers, the competition argument loses credibility. World demand sets the price and our payment depends on the ability for farmers to have some measure of ownership over the processing operation. Companies not owned by farmers will simply match the prices established in this way. The second aspect to competition for milk being "good" for dairy farmers is that it assumes there is always more demand than supply of milk.

In view of the fact that rarely, if ever, has demand outstripped supply worldwide, how can we be confident that a favourable supply-demand balance will exist in the long-term?

Even now, when we can see the trends for demand growing, it only takes a single occurrence, such as the collapse of the US bank Lehman Brothers, to flip the world economy and demand back on its head.

We have also been through a tough economic time and a period of falling milk supply in Australia. The moment milk supply grows again any pressure for a dairy company to pay more is greatly diminished.

The capacity to expand milk production on your farm without restriction is a key factor in owning post-farmgate assets.

In 2008 we received 50 cents per litre for our milk. If we didn't have farmer-owned processing plants, what price would we have been paid? Maybe 40 cents? What is the logic of believing a company will give us more than they have to? More likely it would be just above cost of production - enough to keep us in business.

Farmer influence over processing plants and brands has been the only thing in this country that has forced the international price to be reflected back to farmer's pockets.

Farmer influence over processing plants and brands has led to farmers being paid a fair price, in relation to international milk prices.

The competition from a supplier's perspective only works when there is a player that has farmer interests at its core. If international companies end up owning all our processing plants and brands - then all the players will have shareholders to answer to and raw milk will be an input cost to be minimised.

This is not a complaint against multi-national companies - but a fact of life and business.

As part of my research I have been communicating with farmers in England, Wales, Ireland and across Europe.

The advice from Britain is clear. Maintain farmer ownership or get used to life as a supplier of a product with no influence on your share of returns.

I'm not writing this as a Murray Goulburn Co-operative supplier or WestVic Dairy rep but as a dairy farmer with a lot invested who wants to see a sustainable dairy industry in Victoria.