There is no clear reason why Australia’s largest dairy processor Murray Goulburn is paying farmers significantly less than its competitors this season, according to an industry consultant.
Earlier this week Murray Goulburn announced an opening milk price of $4.31 per kilogram for milk solids.
The Murray Goulburn price was less than what has been announced by all other dairy processors for the new year so far, and it was a significantly lower price than its main competitor Fonterra, which had an opening price of $4.75 per kilogram for milk solids.
John Mulvany, a dairy consultant from OJM Consulting, said on average Murray Goulburn was paying farmers about $0.50 less per kilogram than all other processors.
He said there was a “significant discrepancy” between the prices on offer from the two largest processors, Murray Goulburn and Fonterra.
“When I’ve looked at income estimations in the last 24 hours: in-pocket price sits at about $4.50 with the non-MG people,” Mr Mulvany said.
“The Murray Goulburn [prices] are coming out at about $4.”
But Mr Mulvany said even a price variation of a few cents could significantly affect a farm business.
“There’s a huge difference between a milk price of $4.70 and $4,” he said.
“I know it only sounds to the layman that it is only $0.50 or $0.60.
“But what people have to understand is that just the cash working expenses on a farm will gobble up between $4.50 and $5.”
Mr Mulvany said many Murray Goulburn suppliers would be unable to generate a profit.
“The people who are sitting around $4 or less will have difficulty paying cash working expenses, let alone living and debt in the next 12 months.”
Current prices unsustainable
Mr Mulvany said farmers would be unable to last longer than 12 months at the current milk price rates.
He said farmers had “an incredible ability to chisel” down on-farm costs.
But he said cutting costs was not sustainable for long-term viability.
“The industry cannot be sustained at a milk price below $5 for any longer than a 12 month period,” he said.
“Industry needs between $5.50 and $6 to consistently deliver a return for the efforts and investment of a dairy farmer.”
Mr Mulvany said he could not say when prices would improve from their current low.
“I don’t think anyone has any idea,” he said.
Mr Mulvany said in the months leading up to Murray Goulburn and Fonterra slashing their farm gate milk price the industry had been bracing itself for lower prices.
But he said it was “unnerving” that prices had fallen to where they currently stand.