Maxum & Industry News

8-May-2013

Competition for China's dairy market

CHINESE demand for New Zealand dairy products has well and truly “kicked”, however there is not enough Kiwi supply to satisfy "the dragon’s" increasing consumption needs, providing opportunities for Australian dairy exports, according to a Rabobank dairy expert touring regional Victoria this week.  
Visiting from Christchurch, Rabobank director of Dairy Research New Zealand and Asia, Hayley Moynihan is presenting to local farmers on the Sino-NZ dairy trade relationship, highlighting where the Australian industry can gain increased international market share.  
 
Ms Moynihan is speaking in Colac, Warrnambool, Traralgon, Echuca and Shepparton.  
 
Ms Moynihan said Chinese demand for dairy products had sharply increased with prices skyrocketing by more than 50 per cent over the past two months.  
 
“This price spike has been driven in large part by the New Zealand drought limiting production potential for export, however this event shows how tight global markets are right now,” she said.  
 
“When there is no buffer for a supply shock, markets respond with high prices. This is a ‘here and now’ story.”  
 
Although dairy commodity prices have eased slightly since the peak in the recent spike, Ms Moynihan expects the market will remain at elevated levels until more product is delivered around spring this year.  
 
Ms Moynihan said while the currency is strong in both Australia and New Zealand, partially eroding returns on dairy commodities exported, market forces have prevailed.  
 
Regarding the free trade agreement (FTA) between New Zealand and China, Ms Moynihan said while the arrangement allows a specified volume of New Zealand product into China tariff-free, tariffs still apply on exports above this level.  
 
“In reality, the FTA isn’t dictating overall competiveness for New Zealand, as the tariff-free volumes only represent around one fifth of the volume that China is importing – Australia is in a great position to make up some of that extra supply, even without a tariff-free provision,” she says.  
 
“The Chinese dairy market has grown so much and Rabobank expects that consumption will continue to expand.”  
 
Rabobank regional manager for Gippsland Scott Price is accompanying Ms Moynihan on the tour across parts of Victoria.  
 
Mr Price said it’s been a tough few years for the local dairy industry experiencing unfavourable seasonal conditions and tight margins, however looking to the long-term, prospects of what has been taking place on the global stage looked positive.  
 
“We need to keep an eye on these global signals so we can try to gauge what’s coming, particularly with the nature of how dairy commodities work with regard to forward selling,” Mr Price said.  
 
Ms Moynihan joined Rabobank in 2001 and is a part of the bank’s Food and Agribusiness Research & Advisory division where she contributes to the analysis of global dairy markets.  
 
She is a highly respected commentator on New Zealand’s agricultural sector and a sought-after speaker at international conferences.  
 
In 2012, Ms Moynihan was recognised by Primary magazine as one of the top 10 women in agribusiness in New Zealand.  
 
Source: Stock and Land

24-Apr-2013

Farmers must be more effiicent say supermarkets

Farmers and food manufacturers who supply Coles supermarket are being warned they need to keep getting more efficient.  
 
Parent company Wesfarmers has recorded a strong third quarter profit of more than $8 billion, buoyed by a 6.6 per cent growth in food and liquor sales through Coles.  
 
It's the 15 straight quarter of growth in food and liquor sales, helped by lower prices (1.3 per cent price deflation) and the food discounting campaign.  
 
Richard Goyder, of Wesfarmers, says Coles will continue to pursue direct relationships like the milk deal with Murray Goulburn, and he has a warning for food suppliers.  
 
"There'll be some instances where suppliers, who haven't invested in their businesses and haven't invested in new manufacturing processes and are carrying too much costs where they are, are still going to have to become more efficient."  
 
Senior retail analyst with Citigroup, Craig Woolford, says the fact that Coles and Woolworths are being investigated by the competition watchdog, for abuse of market power, is evidence of increasingly aggressive negotiations with suppliers.  
 
He says suppliers have learnt some lessons.  
 
"Some of the tactics that were used in the UK have been brought into the Australian market, tougher negotiating tactics.  
 
"And the suppliers have gotten sharper and more prepared to deal with these tactics from the retailers."

19-Apr-2013

Synlait plan can boost milk return

A wad of paperwork failed to deter Oxford dairy farm owners Lance and Wendy Main from becoming Synlait's first Gold-Plus certified suppliers, in a new scheme to professionalise its milk supply base.  
 
They were among farmers to help develop the Lead With Pride programme, unveiled to Synlait suppliers this week.  
 
Lance said the financial incentive for becoming accredited was not their main driver, as the programme was "close to their heart" to help raise their standards and formalise their ability as top suppliers.  
 
"We all aim to do a good job and this is another way to get recognised and upskill ourselves. For us it's an indication we are working above the general requirements. Should things go astray elsewhere, this shows we are doing more than necessary to be compliant and it will make us employers people want to be employed with."  
 
The couple are in their third season of supplying Synlait from their Oxford farm of 500 cows and have supplied milk as sharemilkers.  
 
They have yet to advertise for staff, who have come to them for work the past five years.  
 
Lance said they might be good employers, but the scheme had allowed them to set good protocols. They had carried out performance evaluations in the past with staff and this had been locked in and helped them as employers and employees to achieve goals.  
 
He said showing they complied with standards initially had seemed daunting, but had been reasonably straightforward and made sense as it had put safeguards in place.  
 
"I believe it's something, to a varying degree, the whole industry has to undertake. There has been finger pointing with the Clean Streams Accord and this is one way to show we are doing everything we can."  
 
Sharemilkers for 20 years, the Mains bought their 165-hectare farm several years ago, later adding 92ha, and have lifted milk production from 67,000 kilograms of milksolids to 135,000 in their first year and then to 198,000kg, and are on target for 220,000kg despite a dry summer.  
 
The internationally recognised ISO 65 dairy farm assurance programme is split into two bands, with Gold-Plus accredited farmers receiving an extra six cents a kilogram of milksolids and Gold- Elite a 12c/kg premium.  
 
Chief executive John Penno said the scheme was built around Synlait's customer base at the top- end of the market.  
 
Customers knew New Zealand farmers were good milk suppliers and expected them to do a better job with animal welfare and staff, he said.  
 
"We have always talked about our clean, green image and the quality of our milk and our farmers. But what we are doing is putting a system around it so we have something tangible when we are working with our customers."  
 
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Penno said Synlait's top suppliers were already at the Gold- Plus level and this programme would provide them the challenge they needed to supply good records, measure themselves and gain accreditation.  
 
He said it was not enough today for farmers to say they were the best employers and environmental performers, they needed the accreditation to prove it.  
 
Lincoln University research shows the biggest benefits will be the ongoing business improvements suppliers make to their farms, by becoming accredited.  
 
Synlait has worked over the past three years to develop the programme and took it to farmers to find a working system.  
 
Some overseas companies have adopted accreditation schemes, but Synlait understands not to the same level as its programme in milk quality, environmental performance, social responsibility and animal health.  
 
- © Fairfax NZ News

19-Apr-2013

ORGANIC GROWTH

Over a year ago, Fonterra announced it was severely curtailing its organic milk business, concentrating processing in one area and significantly reducing the number of suppliers. The rationale was that the organics side of the business was not doing well.  
That was somewhat ironic, given that soon after the announcement came news stories from Europe and UK that there was a shortage of organic dairy products and companies were struggling to meet consumer demand.  
 
Now, 18 months later, Fonterra is reviving the organic trade, saying it has turned around its business and is now looking to renew contracts with suppliers.  
While some suppliers have welcomed this, others are frustrated at being messed around.  
Farming organically is a significant and long-term commitment. It takes a minimum of three years to gain full certification and regular auditing to maintain that status.  
Demand for organic food, particularly in the more well-off middle classes, is growing.  
 
While it is encouraging to see Fonterra recommitting to that market segment, it is still a puzzle why it was so quick to pull the plug on committed suppliers and a growing market. The lesson may be that a longer-term vision is needed when it comes to new markets and that a temporary slowdown is not always a good reason to pull out.  
 
We’re trialling a quick link section this week for some of the hottest topics in the dairy industry.  
At the end of this newsletter you’ll find quick reference links to a wide range of coverage on the new Coles milk supply proposals in Australia and on the global impact of Chinese infant formula demand.  
We would welcome your feedback on whether this idea works for you.  
 
Source: Dairy Week

18-Apr-2013

Woolworths downplays broader impact of Coles's milk deal

Supermarket giant Woolworths Ltd has said the $2.6 billion deal inked by rival Coles Ltd with milk suppliers will have no impact on Woolworths' strategic options, according to The Australian.  
 
Woolworths chief executive Grant O'Brien said the company would not alter its milk supply arrangements as a result of the deal Coles signed to directly source milk for its private label brands from two dairy farm co-operatives.  
 
“I think [the Coles deal] was a statement of intent,” Mr O'Brien said, according to The Australian. “There's a bit of water to flow under the bridge yet.”  
 
Woolworths embarked on a pilot project last month to source milk directly from a group of seven dairy farmers in northern New South Wales (NSW).  
 
The supermarket chains have been moving towards direct milk sourcing for their private label brands in an effort to cut out processors so that dairy farmers, who have struggled in recent years amid an escalating milk price war in grocery stores, can obtain a better price without forcing supermarkets to raise their retail prices.  
 
Earlier this week, Woolworths said it posted a modest life in third-quarter sales. The company said that for the 13 weeks to March 31, total group sales came in at $14.423 billion, up 2.5 per cent on the $14.072 billion posted in the previous corresponding period.  
 
Source: Dairy Week

16-Apr-2013

Milk deal ideal

LOCAL farmers have welcomed an agreement between a supermarket chain and milk co-operative that will result in more locally-produced products being sold.  
 
Coles has signed a 10-year agreement with MurrayGoulburn Co-operative, which will see the relaunch of Devondale branded fresh milk and the investment of $120 million in two "state-of-the-art" milk processing plants in Melbourne and Sydney.  
 
As part of the agreement, the milk price paid by Coles locks in a premium that will deliver additional profits to Murray-Goulburn suppliers over the life of the contract.  
 
The premium is not affected by price fluctuations in international dairy markets or movements in the Australian currency and the contract contains rise and fall provisions to protect the premium farmers receive.  
 
"The daily pasteurised milk segment is currently mainly supplied by foreign owned companies that repatriate their profits to overseas shareholders," Devondale managing director, Gary Helou said.  
 
"The entry of Australia's farmer owned Co-operative into this market segment cuts out the middle man and delivers profits directly to farmers."  
 
Local farmers have welcomed the announcement.  
 
Murrabit dairy farmer and United Dairyfarmers Victoria representative, Andrew Leahy said the agreement will result in more local product being used in the domestic market.  
 
"This agreement will hopefully give us a bit more market share," he said.  
 
"Anything that helps the local co-operative and farmers is good, and it will also support local businesses."  
 
Gannawarra mayor and Cohuna dairy farmer, Cr Neville Goulding said it would be good to see the Devondale name return to Coles shelves.  
 
"Getting the Devondale brand back into supermarkets must mean more market share; and must enhance returns to farmers," he said.  
 
"This plan will be able to get money back into the pockets of farmers, which will help communities to no end."  
 
Source: The Northern Times

27-Mar-2013

Woolies to go direct to farmers

Woolworths has unveiled plans to buy milk directly from Australian dairy farmers as part of a campaign to demonstrate its concern about the viability of the industry despite offering $1 a litre milk under its own label.  
 
Woolworths said today it is in negotiations with a group of NSW farmers to strike a commercial agreement to ‘‘will allow them to trial the supply of milk directly to the retailer.’’  
 
The supermarket operators have traditionally bought their dairy products from milk processors who deal with the farmers.  
 
Woolworths said the farmers lodged a collective bargaining notification with the Australian Competition and Consumer Commission (ACCC) last week in order to allow them to collectively bargain with Woolworths.  
 
The negotiations will cover pricing, supply arrangements and contract periods and terms.  
 
An answer from the ACCC is expected within two weeks.  
 
In the statement from Woolworths, Manning Valley dairy farmer, Tim Bale, said the trial has the potential to provide a much better deal for farmers.  
 
‘‘Our aim is also to secure longer term contracts which will give us the confidence to invest in our businesses for a sustainable future,’’ he said.  
 
“There’s no doubt that consumers like $1 milk but we think they also recognise that farmer deserve a fair price for what we produce.’’  
 
Woolworths did not confirm reports that the milk will be sold under the 'Farmers Own' brand.  
 
Woolworths has made it clear previously that it is no fan of the milk price war ignited by Coles in January 2011 with $1 a litre milk.  
 
In its submission to a Senate inquiry into competition and pricing in the Australian dairy industry in 2011 Woolworths questioned the sustainability of the low prices.  
 
Woolworths said it will stock homogenised and unhomogenised milk from the farmers by mid-year. Homogenised milk has been treated to break down the fat molecules and give the product a smoother consistency.  
 
 
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Today, Woolworths head of fresh food Pat McEntee said that the trial would benefit both farmers and consumers and could be a model that will enhance the long term sustainability of the dairy sector.  
 
“There is no doubt there are a variety of significant issues affecting different parts of Australia’s dairy industry,’’ he said. ‘‘No one factor – whether it be the impact of $1 milk, or a tough export market exacerbated by a high Australian dollar – is solely responsible for state of the industry.’’  
 
An update from Dairy Australia last month indicated that the industry is still suffering the repercussions noting that average price for branded milk in supermarkets are "down, notably in the higher priced modified milks sub segments".  
 
Dairy Australia said the recent introduction of private label permeate-free milk by Coles and Woolworths will probably influence pricing trends in coming months but added "interest in greater provenance is also likely to have some bearing on new supply and marketing arrangements for fresh drinking milk".  
 
Source: Sydney Morning Herald

26-Mar-2013

Milk price stays in focus in WA

Lion will pay WA dairy farmers a bonus to grow milk production from next year to reduce its reliance on supplies trucked in from interstate.  
WA is feeling its biggest shortfall in milk supply in 50 years as production stumbles in hot,dry weather.  
Lion's Murray Jefferey said the processor would continue trucking in milk from South Australia until the end of June. Jeffrey said Lion would pay its suppliers a bonus of 5 cents a litre for any increase in their production from the previous year between February and July 2014.  
He expected the average farm gate price to rise 2 cents to about 47 cents a litre next year.  
Brownes revealed that it had signed up two large farms - O'Farrell and Ravenhill. Brownes has also bought the Ravenhill brand, processing assets and 8 million litres milk supply for an undisclosed sum.  
Ravenhill was being sold to a Chinese firm until late last year when the deal fell through. Brownes MD Ben Purcell signalled a retail price rise of about 5% to fund increases in price to farmers.  
Coles meanwhile said it would pay Harvey Fresh an extra 2.7 cents per litre for its branded and private label milk following the supermarket’s latest price review.  
 
The retailer said it will absorb the higher cost price from its own margin so that consumers in WA do not need to pay a higher price for milk at the supermarket. “Coles has now increased the price it pays to Harvey Fresh by 6 cents per litre in the last nine months to ensure that WA dairy farmer suppliers are getting a better return at the farmgate,” said John Durkan, Coles Merchandise Director.  
 
Source: Dairy Globe

26-Mar-2013

Fonterra, WCB step up farmgate milk prices

Fonterra Australia announced a farmgate milk price increase (or ‘step-up’) for the 2012/13 season of 8 c/kg of butterfat and 20c/kg of protein for suppliers in Victoria and Tasmania. This step-up brings Fonterra's claimed current farmgate milk price to $4.90 per kilogram of milk solids. Fonterra is also making interest free advances available in all its supply regions to assist farmers in paying for feed and fodder given the current challenging seasonal conditions. Fonterra’s next farmgate price review will be in May 2013.  
WBC also announced its third rise in milk price in the current season - 6 c/kg butterfat and 15 c/kg protein.  
 
Source: Dairy Globe

26-Mar-2013

Bega Cheese buys as Irvin leaves board

Bega Cheese increased its shareholding in WCB in what adviser David Williams, of Kidder Williams, said was simply " rounding it up to 17 per cent, nothing more".  
Williams said a "weakness in the market" provided a good opportunity to top up Bega Cheese's stake.  
WBC also announced that Bega chairman Barry Irvine had resigned as a director of the company. Bruce Morley, a former director and currently an associate, will take his spot.  
 
Source: Dairy Globe