A dairy processor has recently begun one of the longest milk runs in the world to the Top End, as farmers in Western Australia struggle with an oversupply of unwanted milk.
Parmalat is trucking milk more than 4,000km from Harvey Fresh in the South West of WA to its processing plant in Darwin, to supply the Northern Territory with milk.
Dairy analyst and director of Fresh Agenda Joanne Bills said the move was a win for both WA dairy farmers, processors, and consumers in the Territory given its isolation from fresh sources of milk.
“I don’t think anyone in the territory stops to think how amazing it is that there’s fresh milk in the supermarkets every day,” she said.
“[Darwin] is always going to be a long way from anywhere in terms of sourcing and trucking milk, but I suppose what’s happened in Western Australia at the moment is really quite unprecedented.
“We’ve not only seen Parmalat doing this as a way of dealing with their excess milk but we’ve also seen in WA that a couple of farmers have been told their milk will no longer be picked up by one of the other processors.
“There appears to be nowhere else for that milk to go, so it’s a fairly challenging situation from WA’s perspective, and I guess at the moment they’re grateful for that outlet of the Northern Territory to take some of that [excess] milk.”
Milk supply in the Territory
Ms Bills said since dairy operations dried up across the Territory in the 1990s, major processors such as Parmalat and Lion have sourced milk across their national network, predominantly from South Australia and Queensland.
“Both the major specialised milk processors, Lion and Parmalat, they’ve not only got not only their own brands in the Territory but also hold private label contracts with the retailers and it’s their responsibility to source milk from wherever they can to fulfil those contracts,” she said.
“Over the years there have been instances where dairy operations have started up within the Territory, but given the challenge of the environment most milk in the Territory over the last two decades has been sourced from elsewhere.
“Back in time a lot was sourced from central and even far north Queensland, but as that milk pool has shrunk over the years a lot more milk has come up to the Territory from South Australia.”
Isolated markets like the Northern Territory provided costly, logistical challenges for dairy processors and farmers.
A balancing act for processors and farmers
Ms Bills said balancing milk supplies around the country was challenging for both farmers and processors.
“There’s an awful lot of milk that moves around the country, what the processors are trying to do is balance that supply and demand requirement,” she said.
“In Western Australia, for example, before this recent growth spurt, they had an undersupply of milk, particularly in the late summer months.
“So it’s been a regular occurrence for milk to come across from South Australia to supply that WA market and when those processors in South Australia don’t have enough milk they’ll pull it across from Victoria.
“Processors manage their direct supply most of the time so they have just enough or a bit less than they need, and then they’ll draw from the other manufacturing companies like Murray Goulburn, Fonterra and others to top up that supply.”
Ms Bills said isolated markets such as the Northern Territory provided some logistical challenges for the dairy industry.
“I think it’s a fairly massive logistical challenge for anyone who is small and would come at high cost,” she said.
“But for these major processors that do have that national footprint, they have that flexibility and have the scale to spread that cost over their whole network.
“What we see for both farmers and processors is that a lot of the fresh milk demand in Australia is fairly flat from year to year, whereas a lot of the milk production is quite seasonal.
“So having the right amount of milk, in the right place, at the right time is a challenge for both farmers and processors.”
Parmalat were contacted for an interview about their milk operations to the Territory but declined to comment.
Responding to supply and demand
Ms Bills said there was a number of strategies being used by WA farmers to respond to low price signals and oversupply issues as cheaper, European UHT long life products continue to flood the global dairy market.
“What we’ve seen is a huge influx of European UHT milk into some of those markets at very low prices and the WA milk is getting squeezed out of the market,” she said.
“The main strategy that farmers have employed this time around is to quit some of their underperforming cows and because beef prices have been so good, they’ve got quite good prices for those cows.
“In the longer term there will be opportunities for WA milk again in some of those affluent fresh milk markets in Asia, with the Europeans starting to pull back on some of that very cheap product.”
Preparing for the future
It has been a troubling year for the WA dairy industry, with the milk crisis threatening the livelihoods of more than half a dozen farmers struggling to reconcile an oversupply of unwanted milk.
WA Farmers have called on the State Government to consider a financial aid package to help relieve dairy farmers who have been unable to secure new contracts with major processors Brownes and Harvey Fresh.
Dairy section president Michael Partridge said despite this he remained positive about the long-term outlook for the industry, adding he was confident the oversupply issue would reverse itself by the end of the year.
“It’s very distressing what’s happening in the industry at the moment and it is being put onto a few farmers [whose] contracts are being cut,” he said.
“[They] are very good farmers and the industry needs to hold onto them because the industry is going to need them in the future.
“We are looking for some assistance from somewhere to get over this hump and keep these guys in business because the longer-term future is bright.”
Mr Partridge said a recovery in the world dairy market and an expansion into more diverse products would make it easier for exporters in the state to sell milk at more competitive prices and in larger quantities.
“It’s not necessarily the oversupply that’s the problem, it’s having the markets which they can be able to access for a profit, that is where it’s difficult at the moment,” he said.
“I think it’s very important the states look very closely at investing a bit more diversity in the export markets, so we have a broader range of products to sell on the world market.
“Then we’ll be well placed to take advantage of that in the future but at the moment we do lack a bit of scale and diversity in the infrastructure.
“I think if we had that, we wouldn’t see the problems we have right now.”