DAMIAN Murphy isn’t one for making rash decisions.
A former Nuffield scholar and forward-thinking, smart, young dairy farmer, he’s just the sort of person the industry needs most and any milk company would be pleased to have as a supplier.
To date, he’s been a loyal Murray Goulburn suppler.
But if, as he says, he’s “considering his options” after the shock release of MG’s opening price last week, the big co-op better sit up and take notice.
Murray Goulburn’s opening price is fully 80c per kg milk solids (kg/MS) behind Bega Cheese, for example, and although MG and Bega are projecting to be a lot closer by the end of the season, according to Mr Murphy, every dollar counts this year.
• MG: $4.70 opening ($5.20-$5.40 projected)
• Burra Foods: $5.45-$5.65 (includes 40c three-year supply guarantee)
• Bega Cheese: $5.50 ($5.30-$5.70 projected)
“Certainly there has been a lot of talk in the industry in the past few months and weeks in particular,” Mr Murphy said this week.
“After the difficulties of the past 18 months, most farmers were looking for a price that was going to offer them a bit of relief, allowing them to get on with it again.
“But the MG price did send through a bit of a shockwave.
“I said OK, let’s see what the other companies come out with and make an informed decision about our situation.
“There’s a lot of smoke and mirrors with the various offers and you need to work out what it means in your situation, rather than taking notice of the headline price.”
An example of this is the $0.40/kg prepayment Burra Foods is offering its suppliers (included in their opening offer of $5.45-$5.65 which requires a signed commitment to supply Burra for at least three years.
“You’ve also got to be a bit careful with projected finishing prices too, and the farmers have possibly been their own worst enemies with this, wanting their companies to give them an indication going forward anywhere from 12 to 14 months ahead.
“You’ve only got to have an incident like a plane being shot down or something and all that can go out the window.
“You’ve got to go on what you know you’re going to get. Look at the opening price and go from there, how it relates to your business and that’s what we are doing now.”
He said MG came out with an average price for the Southern Milk Region, which would be different based on individual supply profiles, while Bega and Burra were able to offer a more “local” price.
Damian’s two-year “Next Generation Dairy Rebate” incentives package finishes at the end of this financial year, so he’s in a position now to move if he wants to.
“Like everyone else, we’ve got to look at the situation and decide what’s best for my business, not leave your head in the sand and hope it comes right. Make a decision about your business and the best way forward.”
He expects, that if suppliers do make decisions to move, they’ll do it at the end of this financial year.
He says that if there is a significant difference between returns then people will move, they’ll have to.
“Things have been so tight for the past 18 months, it’s about getting the dollars you need just to get by. It’s not getting the cream. Getting $40,000 more over the year by moving could be the difference between paying something off the principle (farm loan) or not.
“The indication we’ve had is that we’ll get $4.87kg/MS for the whole year (from MG) but our costs, without paying any principle or capital improvement, will be $4.80.
“You can’t afford to ignore anything that improves that situation.
“There’s a real feeling of fatigue now because it’s been so long, but now we’re looking at another tough six months, at least.”
Will he leave Murray Goulburn? That’s a $64 question that must also be weighing on the minds of MG company directors with firms like Burra Foods making no secret of the fact that they want to grow supply ahead of the new season.
“Milk consumption across Asia continues to grow with each generation consuming more than the last,” said Grant Crothers, Burra Foods Chief Executive Officer.
“Current investments in capability and capacity at our Korumburra manufacturing facility and leveraging the expertise of our major shareholders is ensuring that Burra Foods is well placed to meet the growing need for milk ingredients.”
Mr Crothers said that Burra Foods is wanting to process around 350 million litres of milk this coming season, up from 300 million litres of milk this year and wants to see growth in new suppliers.
“We are investing heavily in capacity to respond to market opportunity which will ultimately maintain our ability to pay a price premium for our milk supply partners,” he said.
What next for MG suppliers?