Fon­terra milk price claims mis­lead­ing

Dairy News Australia - - OPINION - OPIN­ION JOHN McQUEEN

MOST MILK sup­ply com­pa­nies have an­nounced their open­ing milk prices for 2017-18.

While there will al­ways be some vari­ances in the open­ing prices for dif­fer­ent com­pa­nies this price gen­er­ally re­in­forces the rel­a­tive strength of mar­ket price im­prove­ment.

Fur­ther re­in­forced by Dairy Aus­tralia in their re­cent Sit­u­a­tion and Out­look re­port, the im­proved out­look for 2017-18 of­fers sus­tain­ably bet­ter re­turns with in­dica­tive prices for the year ap­proach­ing $6/ kg milk solids.

Bega and War­rnam­bool both stated their open­ing price of $5.50/kg MS. Over the years both com­pa­nies have been very con­sis­tent with their prices re­flect­ing the world mar­ket, and their farmer sup­pli­ers have been paid ac­cord­ingly. We can be con­fi­dent that the open­ing prices of both Bega and War­rnam­bool re­flect the steady up­ward im­prove­ments we have seen in world mar­ket prices over the past 6 months.

We have also seen the re­lease of Fon­terra’s open­ing price for the com­ing year at $5.30/kg MS, which is Fon­terra’s true in­ter­pre­ta­tion of the mar­ket price and re­in­forces the vari­ances in open­ing prices be­tween com­pa­nies.

Ear­lier this year, Fon­terra an­nounced it was go­ing to pay an ad­di­tional 40 cents/kg MS to all its sup­pli­ers for the 2017-18 year to ac­count for the step-down and claw back it ap­plied to its sup­pli­ers in 2015/16.

While most Fon­terra sup­pli­ers wel­comed this news, there has al­ways been con­cern that the 40 cents com­pen­sa­tion pay­ment would be mar­keted as part of their price for the 2017-18 year.

In a re­cent meet­ing with Fon­terra, ADF was as­sured the 40 cents would be de­fined as a pay­ment on top of their mar­ket price for 2017-18 and not ac­tu­ally part of the price. ADF was con­cerned that this com­pen­sa­tion pay­ment if mar­keted as part of their open­ing price to farm­ers, could be used to give Fon­terra a per­ceived un­fair ad­van­tage over all other com­pa­nies.

We be­lieve that com­pa­nies who did the right thing by their sup­pli­ers for the 2015-16 year should not be ac­cused of lag­ging be­hind Fon­terra’s price for 2017-18. The an­nounce­ment of the ad­di­tional 40 cents as com­pen­sa­tion was for the ma­jor step downs and claw­backs Fon­terra ap­plied to their sup­pli­ers dur­ing May 2016.

So, it was with con­sid­er­able dis­ap­point­ment that we saw Fon­terra’s an­nounce­ment of their open­ing price and the sup­port­ing me­dia re­lease from Bon­lac Sup­ply Com­pany. In their com­mu­ni­ca­tions, they por­trayed their open­ing price to in­cor­po­rate the 40 cents to make the price $5.70 /kg MS, which makes them look like they are 20 cents/kg MS ahead of the compe- tition.

Not only is this un­fair to other com­pa­nies which are above the Fon­terra an­nounced $5.30 open­ing mar­ket price, but it is also mis­lead­ing to all their sup­pli­ers. It is a fact that the 40 cents/kg MS to be paid to all Fon­terra sup­pli­ers this year is a com­pen­sa­tion pay­ment for 2015-16 – and should not, at any time, be char­ac­terised as part of the mar­ket price for 2017-18.

This past year, ADF and our state mem­ber or­gan­i­sa­tions have worked in col­lab­o­ra­tion with com­pa­nies to de­velop a Code of Prac­tice on Con­trac­tual Ar­range­ments. Most of the dairy com­pa­nies par­tic­i­pated in the de­vel­op­ment of the Code and agreed that one of the most im­por­tant elements of the Code was the need for greater trans­parency in pric­ing for farm­ers.

By mon­i­tor­ing the ap­pli­ca­tion of the Code with farm­ers, we will be able to as­sess whether com­pa­nies are con­form- ing to the trans­parency prin­ci­pals out­lined within the Code of Prac­tice.

There is a real dan­ger that Fon­terra’s cur­rent char­ac­ter­i­sa­tion of the 40 cents/kg MS be­ing added to their mar­ket price for the year will give the wrong sig­nal to all farm­ers and other com­pa­nies that trans­parency only goes a small way.

It is im­por­tant that all dairy com­pa­nies re­main fair and trans­par­ent in their pric­ing. The in­con­sis­ten­cies have in­di­cated Fon­terra and BSC are not be­ing com­pletely trans­par­ent with their sup­pli­ers.

These types of con­tra­dic­tions are noth­ing but mis­lead­ing at a time when the dairy in­dus­try has com­mit­ted to re­build­ing trust along the sup­ply chain.

• John McQueen is the in­terim CEO of Aus­tralian Dairy Farm­ers.

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