Processing Sector feels the squeeze

I have been quietly waiting for about two years for something to go pop in the Australian Dairy Industry. Milk prices have been high- above market prices due to processors fighting for milk supply among a steadily reducing number of farmers. My money was on a major processor withdrawing from the Australian dairy scene.

Shock, horror, I was totally wrong. Inconceivable.

There is a major shakeup going on at the moment but most of the major players are chopping off an arm rather than shutting down the whole shebang. Lactalis closing down the Echuca site and moving to Bendigo. Bega mothballing dryers at Koroit. Saputo having probably taken more than its share of pain, closing multiple sites and having King Island Dairy for sale at the moment. Some milk processors are actively shedding the milk supply they fought so hard to get, but all the majors are still here.

My concern is for the little guys. They are being seriously squeezed and there has been a string of recent closures. Kind Milk, Gundowring Ice Cream, Made by Cow, Country Valley Milk, Shaw River Cheese and Jonesy’s Milk, taken over by Camperdown and then Camperdown shut down not long after.

This is only a small number I can think of off the top of my head. Some are age and stage, and some were forced- but, more importantly, they are not being replaced. There has rarely been a worse time to be an artisan dairy producer.

All of the major inputs- milk, labour, freight, electricity, cost of packaging have skyrocketed but there is not room to lift the product sale price to the same extent. The market is not helped by the major dairy producers pouring mass-produced artisan looking products into the same market at a much lower price point.

The volume of imported dairy product coming into the country is also growing exponentially and a lot of this masquerades as Australian made. We are often asked by farmers wanting to do similar things how Bethune Lane Dairy is going, and I always try and give a faithful account of the good and the bad. The key takeaway is that you would have to be barking mad to try it at the moment.

That’s enough doom and gloom. People laugh at me when I say I think we have been blessed but I know it’s right. Imagine if we had tried to set up our little business in a time of a poor milk price or a drought- we wouldn’t have lasted 12 months. We have multiple reasons to be unrealistically optimistic.

We are only weeks away (we have been weeks away for about two years, but we are really close now) from our first major step towards a low level of automation. Automated bottle filling, capping and date labelling will greatly assist our labour efficiency. We have a preliminary ‘yes’ email from Coles saying our chocolate milk had passed the six-month range review trial. We have been in three Coles supermarkets for six months and it’s a bit unclear at this stage, but it appears this means we will get access to some more Coles supermarkets in future. So a big thank you to Swan Hill and Bendigo for buying lots of chocolate milk!

I had a phone call with the owner of Little Big Dairies at Dubbo, and he offered us the chance to visit their operation. He said, “I know exactly where you are at- I remember sticking date labels on bottles at night, manually filling and packing bottles thinking it was all too hard, but we persisted and it was worth it.”

I also spoke to Tristan Harris, the owner of Harris Farm Markets-they have 26 supermarkets and are our biggest customer. He said I was sending him broke because even though he got a store discount, he was spending too much money on buying our chocolate milk for his children.

He gave me some advice on our operations and said there was lots of room for premium dairy products in the Australian market and ours definitely belongs in the premium bracket.

So, on the numbers, we should be shut down by now. But I have been farming for more than 30 years and all the major decisions I have made have been done not on economics, but on gut feel, and while we have walked a fine line sometimes, mostly it’s worked out ok.