Christopher Niesche: Milk of human kindness won't fix glut

Retrospective price cut to farmers by Murray Goulburn is the latest blow to industry struggling to cope.
A global glut has seen dairy prices fall. Photo / Lynda Feringa
A global glut has seen dairy prices fall. Photo / Lynda Feringa

Australians like to think of ourselves as rugged outback types.

The reality is that this wide brown land is one of the most urbanised nations on earth. Most of us live on the continent's coastal fringe, getting around in our exercise pants clutching takeaway coffees.

Occasionally, however, we briefly switch our attention from property prices and hipster-run bodegas onto our country cousins.

The past few days have been one of those rare occasions.

Urban dwellers have rushed into supermarkets to buy brand-name bottles of milk instead of the cheap generic supermarket brands in an attempt to help our struggling dairy farmers.

Part of the reason that dairy farmers are struggling is because Coles and Woolworths are selling milk so cheaply. Home brand milk costs just a dollar a litre - less than they charge for most brands of water.

The supermarkets make only 3c or 4c a litre from that cheap milk instead of the usual 20c.

Along with bread, bananas, avocados and toilet paper, milk is said to be one of the few products of which shoppers are aware of the cost. So by selling cheap milk, supermarkets can create the perception of value and bring customers through the doors.

Dairy farmers believe the supermarkets have permanently devalued the price of milk and have stripped millions of dollars out of the milk profit pool.

City slickers have been rallying in support in the past week, snapping up all the name brand milk they've been able to find.

The shoppers - who were lapping up the A$1 ($1.07) a litre milk only the week before - might think they're helping out the dairy farmers, but the reality is the problems with the milk marked go far deeper.

In part it's a supply problem. While we might have hoped Chinese milk demand was insatiable, more supply has come onto the global market and prices have dropped, as they did a few years ago with iron ore.

City slickers have been rallying in support in the past week, snapping up all the name brand milk they've been able to find.

Dairy farmers in Australia are struggling with low milk prices, just as they are in New Zealand, but some here have it much worse.

A few weeks ago, those in the unfortunate position of supplying the poorly managed Murray Goulburn dairy company had the price they received cut from A$5.60 a kilo of milk solids to between A$4.75 and A$5. That's bad enough, considering each kilo costs about A$5 to make.

What's hit these farmers hard is that the mid-season price cut was retrospective. Murray Goulburn said it would also apply to the previous 11 months' payouts. This was money that farmers had already earned and spent and some estimates say the retrospective cut created an average instant debt of A$120,000 per farmer.

While other dairy companies had already cut their prices and were warning of the global dairy glut, Murray Goulburn's management was insisting until the last minute that prices would stay high, giving farmers no reason to plan for tough times.

The real issue was over-inflated prices paid to the dairy farmers, a point made by Judith Swales, managing director of Fonterra Oceania. "The Australian dairy industry has to get real about milk price, and find ways to adjust to the new lower milk price environment that we expect is likely to continue next season," she said.

It's tough medicine, but she's right. No amount of Aussie city dwellers buying expensive milk is going to solve the world dairy glut.

Sexism question

Over the past few days, Sydney's broking and investment community has been pondering an issue that doesn't usually cross its radar: what is sexism?

The topic pushed its way into the broking community's consciousness after prominent broker Angus Aitken was sacked from the Bell Potter securities firm for making what some considered to be sexist comments about ANZ bank's new CFO in an investment advice note to clients.

Aitken wrote that the appointment of former investment banker Michelle Jablko as CFO of ANZ was one of the "dumber appointments I have seen" and "another reason to not own this stock - Sell ANZ".

He pointed out that while in a previous job Jablko had advised on the A$1 billion purchase by law firm Slater & Gordon of Quindell assets in the UK which are now worth "bugger all".

Nowhere did he refer to Jablko's gender, but ANZ branded the comments sexist and Aitken is out of a job. In turn, Aitkin is suing ANZ for defamation.

Aitkin's criticisms might be harsh, but it's hard to construe them as sexist. He has been similarly outspoken about male executives he believes weren't up to the job.

His removal from Bell Potter means stockbroking has lost one of its more colourful and straight talking characters - Aitken's daily briefing notes were eagerly anticipated by clients.

It also means others will be more circumspect in their comments and business will be blander as a result.

- NZ Herald

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