Supermarkets are not milking dairy farmers dry: the myth that obscures the real problem


Gary Mortimer, Queensland University of Technology

Australia’s federal agriculture minister, David Littleproud, has called for a boycott of supermarket-branded milk. He is angry about lack of support for a “milk levy” of 10 cents a litre wanted by the dairy industry to support drought-stricken farmers.

Fellow National Party colleagues have called for nothing less than a royal commission into the supermarkets’ support for farmers. Nationals leader, and deputy prime minister, Michael McCormack, has said he is open to the idea.

Amid intense price competition across many supermarket categories, the price of milk stirs passions like nothing else.

But calls to boycott supermarket-branded milk are misguided; and a royal commission would not be money well-spent.

The widely held belief that supermarkets are hurting dairy farmers by driving down the price of milk is incorrect.

It overlooks basic supply chain dynamics and the findings of the 18-month-long inquiry by the Australian Competition and Consumer Commission, which was ordered by then federal treasurer Scott Morrison to investigate the low milk prices paid to dairy farmers.




Read more:
Helping farmers in distress doesn’t help them be the best: the drought relief dilemma


Indirect relations

Looking at the supply chain for fresh milk helps show why the retail price of supermarket-branded milk does not determine the price paid to farmers as some claim.

There are many players within a food supply chain: producers, processors, wholesalers, retailers and consumers.


Fresh dairy supply chain volume map:
Department of Agriculture, Fisheries and Forestry

Dairy farmers typically sell their milk to processors, who then sell to supermarkets. There is a relationship between the supermarket and processor, not supermarket and farmer. Whether the supermarket sells a litre of milk at $2, $3 or $4 has no direct relationship on the price the processor pays to the farmer.

In the words of the final report of the competition watchdog’s Dairy Inquiry, “the farm-gate price paid to farmers for milk used to fulfil private label milk contracts is not directly correlated with private-label milk retail prices”.

Blame dairy processors

The ACCC’s report does identify a range of market failures due to bargaining power imbalances and information asymmetry, but these are crucially between dairy farmers and processors.




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Murray Goulburn and Fonterra are playing chicken with dairy farmers


Dairy farmers’ weak bargaining power means any higher price paid by supermarkets to processors would not necessarily result in higher farm-gate prices. The ACCC report notes that farmers get no more money for the milk that is sold at higher retail prices (such as branded milk).

Processors, not supermarkets, set farm-gate prices in response to market conditions (global and domestic demand), at the minimum level required to secure necessary volumes. Farmers are not paid according to the type or value of the end product their milk is used in. They are paid the same price for their raw milk regardless of what brand goes on the container.


Distribution of revenue from sale of private label vs branded fresh drinking milk:
ACCC Dairy Inquiry

Also blame consumers

Supermarkets are under pressure to keep food prices low, particularly on staples such as bread, milk and eggs. This is evident from the fact that campaigns to get shoppers to exercise their power as ethical consumers quickly run out of steam.




Read more:
We are what we eat: the demise of the ethical grocery shopper


In April 2016, for example, national attention on the plight of dairy farmers led to a campaign encouraging shoppers to leave “supermarket branded milk” on the shelves. In a single month the supermarket brands’ share of milk sales dropped from 66% to 51%. Then it began to rise again. Within a year it was back to nearly 60%.


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Adding to confusion

While a milk levy to directly help farmers during the drought has many supporters, the disconnect within the supply chain means it is near impossible for retailers to pass the money directly to the intended beneficiaries. That, again, depends on those who buys the milk from the farmers – the processors.

Despite this, and because the ACCC inquiry’s findings have so far done little to dispel myths about the price of milk, retailers such as Woolworths have seen it as prudent to embrace the levy idea and publicly demonstrate support for dairy farmers.




Read more:
Time to get regulation back into Australian dairy?


All the additional proceeds from its “Drought Relief” milk go back to processor Parmalat, who is responsible for distributing the money to suppliers in drought-affected areas. Coles, meanwhile, has slapped a 30 cent levy on its three-litre milk containers, with the funds going to the Coles Drought Relief Fund.

These measures arguably add to continuing confusion about how the milk market works and the relationship between farm-gate and retail prices.

In the court of public opinion the supermarkets probably had no option but to go along with the charade.

A minister for agriculture, however, should know better.The Conversation

Gary Mortimer, Associate Professor in Marketing and International Business, Queensland University of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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We must look past short-term drought solutions and improve the land itself


David Lindenmayer, Australian National University and Michelle Young, Australian National University

With drought ravaging Australia’s eastern states, much attention has been given to the need to provide short-term solutions through drought relief. But long-term resilience is a vital issue, particularly as climate change adds further pressure to farmers and farmland.

Our research has found that helping farmers improve the rivers, dams, native vegetation and trees on their land increases productivity, the resilience of the land to drought, and through this the health and well-being of farmers.




Read more:
Helping farmers in distress doesn’t help them be the best: the drought relief dilemma


Now is the time to invest more heavily than ever in vital networks in regional Australia, such as Landcare and natural resource management groups like Local Land Services and Catchment Management Authorities.

Research shows that trees, dams and native vegetation are essential to increase agricultural productivity.
Shutterstock/Olga Kashubin

Growing pressures on agricultural land

Some researchers suggest that up to 370 million hectares of land in Australia and the Pacific is degraded. This diminished productivity across such a large area has significant implications for the long-term sustainability of agricultural production.

Australia also has one of the worst records for wildlife diversity loss, including extensive loss of biodiversity across much of our agricultural land. The problems of degradation and biodiversity loss are often magnified under the pressure of drought.




Read more:
Is Australia’s current drought caused by climate change? It’s complicated


The good news is that there are ways to strengthen the resilience of the farmland. One key approach is to invest in improving the condition of key natural assets on farms, like shelter belts, patches of remnant vegetation, farm dams, and watercourses.

When done well, active land management can help slow down or even reverse land degradation, improve biodiversity, and increase profitability.

Better lands make more money

Many studies have shown improving the natural assets on an farm can boost production, as well as avoid the costs of erosion and flood control. For example, restored riverbank vegetation can improve dry matter production in nearby paddocks, leading to greater milk production in diary herds and up to a 5% boost in farm income.

Lines of trees, called windbreaks or shelterbelts, can protect and improve the fields next to them.
Peter Fenda/Flickr, CC BY-NC-SA

Similarly, shelter belts (tree lanes planted alongside paddocks) can lower wind speeds and wind chill, and boost pasture production for livestock by up to 8%, at the same time as providing habitat for biodiversity.




Read more:
Recent Australian droughts may be the worst in 800 years


Our own long-term work with farmers who invested in their natural assets prior to, or during, the Millennium Drought in New South Wales suggests these farmers are currently faring better in the current drought.

Investing in resilience for the long-haul

Groups like Landcare bring their expertise to land management.
Shutterstock/Darryl Smith

Well-supported and resourced organisations like Landcare groups are pivotal to supporting effective land management, which improves degraded land and helps farmland (and farmer) through tough times.

However, Landcare and other natural resource management agencies have been subject to major budget cuts over the past decade.

They are also a key part of the social fabric of rural communities, bringing together landowners to exchange ideas and support each other. Indeed, the Australian Landcare model is so well regarded globally it has been adopted in 22 other countries.




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Australia moves to El Niño alert and the drought is likely to continue


This drought is a critical decision point. The need to invest in maintaining and improving our vegetation, water and soil has never been more apparent than it is now. We have a chance to determine the long-term future of much of Australia’s agricultural land.The Conversation

David Lindenmayer, Professor, The Fenner School of Environment and Society, Australian National University and Michelle Young, Director, Sustainable Farms, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Helping farmers in distress doesn’t help them be the best: the drought relief dilemma


Neal Hughes, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and Steve Hatfield-Dodds, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

Two years ago we were celebrating just about the best year for farmers ever. Now many farmers – particularly in New South Wales and southern Queensland – are in the grip of drought.

It underlines just how variable the Australian climate can be.

While attention is focused on responding to the current situation, it is important to also think long-term. In our rush to help, we need to make sure well-meaning responses don’t do more harm than good.

The drought policy debate

The recent drought has stimulated much empathy for farmers from the media, governments and the public. Federal and state governments have committed hundreds of millions of dollars in farmer support. Private citizens and companies have also given generously to the cause.

While there appears to be overwhelming public support for helping farmers through drought, concerns have been raised by economists as well as farmer representatives – including both the former and current head of the National Farmers’ Federation.

A central concern is that drought support could undermine farmer preparedness for future droughts and longer-term adaptation to climate change.

Another concern is that simplistic “farmer as a victim” narrative presented by parts of the media overstate the number of farmers suffering hardship and understates the truth that most prepare for and manage drought without assistance.

Sensationalist media coverage can also damage Australia’s reputation as a reliable food producer. Images of barren landscapes, stressed livestock and desperate farmers send the wrong signals to customers and trading partners.

An acute policy dilemma

The tension in drought policy is real.

To remain internationally competitive Australian farmers need to increase their productivity.

Agricultural productivity depends on two main factors. First, innovation – adopting new technologies and management practices. Second, structural adjustment – shifting resources towards the most productive sectors and most efficient farmers.

Supporting drought-affected farms has the potential to slow both these processes, weakening productivity growth.

This gives rise to an acute dilemma: should we support farmers in distress, or support the industry to be the best it can be?




Read more:
To help drought-affected farmers, we need to support them in good times as well as bad


Factoring in climate change

While it is difficult to attribute any specific event to climate change, it is clear Australia’s climate is changing, with significant consequences for agriculture.

Australian average temperatures have increased by about 1℃ since 1950. Extreme heat events have become more frequent and intense. Recent decades show a trend towards lower average winter rainfall in the southwest and southeast.

Research by the Australian Bureau of Agricultural and Resource Economics and Sciences shows climate change has negatively affected the productivity of cropping farms, particularly in southern Australia.

This research also shows evidence of farmers adapting to maintain productivity and reduce their sensitivity to climate.


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Key southwestern and southeastern agricultural zones have been especially impacted by climate change.
ABARES

There is still much uncertainty over what climate change will mean for agriculture in the future.

However, the evidence we do have points to more frequent and more severe droughts, if only because of higher temperatures and evaporation rates.

Farming isn’t like other industries

Although businesses in other industries are expected to manage risk without assistance, agriculture has some special aspects that help build a case for a government policy response.

First, risk in agriculture is generally greater than in other industries. Farmers are vulnerable to variation in international commodity prices as well as droughts and other extreme events.


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Second, most farm businesses are also farm households.

While many other risky industries are made up of large corporate businesses (generally with diversified assets and ownership), agriculture is dominated by family farms.

Third, financial markets both in Australia and internationally struggle to provide viable risk management products for farmers – particularly drought insurance.

This means farming is an unusually risky business. Farmers must therefore be more conservative about financing and operating their businesses, which constrains investment, innovation and ultimately productivity.

Helping farms without making things worse

In 2008 a Productivity Commission review recommended a national farm income support scheme.

This led to the Farm Household Allowance program.

It provides a fortnightly payment, usually set at the rate of the Newstart unemployment allowance. There is also a financial assessment of the farm business and funding to help develop skills or get professional advice.

Those welfare programs provide an important safety net for farm households. Because they provide targeted support to households, rather than businesses, they result in fewer economic distortions than alternative approaches.

Past reviews have consistently recommended against subsidising farm business inputs or supporting output prices. This includes providing subsidies for livestock feed.

While these measures might provide short term relief, if they become routine they risk weakening the incentives to manage farms properly, by for instance destocking sheep and cattle ahead of likely droughts.




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Drought is inevitable, Mr Joyce


Looking to the future, it is possible insurance could have an important role to play.

While drought insurance has failed to thrive in Australia to date, advances in data could allow more viable forms of insurance to emerge.

In particular, index-based insurance products where payouts are based on weather data rather than an assessment of farm damages.

Such insurance, if done well, could provide farmers with better protection from climate risk, while also supporting adaptation and productivity growth – effectively sidestepping our current drought policy dilemma.The Conversation

Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and Steve Hatfield-Dodds, Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

This article is republished from The Conversation under a Creative Commons license. Read the original article.

To help drought-affected farmers, we need to support them in good times as well as bad



File 20180808 191041 xb0wtk.jpg?ixlib=rb 1.1
Farmers need help to plan for droughts, not just to respond to them when things get desperate.
Stephenallen75/Shutterstock.com

Jacki Schirmer, University of Canberra; Dominic Peel, University of Canberra; Ivan Charles Hanigan, University of Sydney, and Kimberly Brown, University of Canberra

With the New South Wales government announcing that drought is now affecting the entire state, the federal government’s crisis assistance payments have been described by some as too little, too late. The National Farmers Federation has renewed its calls for a national drought policy and drought experts have expressed concern about reliance on emergency handouts.

With droughts predicted to grow in frequency and severity in the future, we need to support farmers and their communities to adapt to these changes.

To best support the well-being of farmers and farming communities, we need to support them not just when they are in the middle of a drought, but also when the rain comes and the dust has settled. An emergency response is important, but on its own is not enough – our farming communities deserve more. It needs to be accompanied by long-term coordinated support, delivered through the whole drought cycle, that helps farmers prepare for drought, cope with drought when it is happening, and recover rapidly afterwards.

Prolonged droughts harm the health and well-being of people in farming communities, although research also shows that not everyone is affected to the same extent, and some not at all. This means we need to learn from past experience in choosing what actions represent the best and most effective investments.




Read more:
Farmers experiencing drought-related stress need targeted support


Providing farmers with emergency assistance when drought is at its worst helps to alleviate the most acute hardship. But multiple inquiries and research studies (see here, here and here) have concluded that this approach is not enough.

To truly support the well-being of farming communities facing the threat of drought, we need to invest more in actions that support their preparedness and resilience before drought hits, rather than waiting until conditions are at their worst before offering help.

The hydro-illogical cycle

Doing this requires breaking the “hydro-illogical cycle”, in which a severe drought triggers short-term concern and assistance, followed by a return to apathy and complacency once the rains return. When drought drops off the public and media radar, communities are often left with little or no support to invest in preparing for the next inevitable drought.

The hydro-illogical cycle.
US National Drought Mitigation Center, Author provided

Farmers need proactive, long-term access to drought preparedness schemes well in advance, before the effects of drought begin to bite. Farmers who use programs such as the farm management deposits scheme, which allows them to put aside surplus income in good years and draw on it in difficult ones, have higher well-being during droughts than those who access emergency assistance provided during drought.

Our research has also identified some other ways to protect farmers’ well-being during challenging times. These include investing in forward planning for drought, supporting farmers to invest in “drought-proofing” measures suitable to their farm, and creating networks through which farmers can share their knowledge about what works to cope best with the financial, psychological and social challenges they face.

These things are not a “fix” for drought; a drought will always have significant impacts. But they can help reduce the severity of impacts, and the time taken to recover. However, to really be effective, these actions need to be invested in between droughts, in addition to investing in emergency support during drought.

We can learn a lot from the actions that farmers are already taking. Thousands of farmers have spent years investing in drought resilience, for example by changing pasture types and water management practices, and by changing how they plan for and manage periods of low rainfall.

This investment often goes unsupported and unrecognised, and has to be done among the ever-present pressures of challenging market conditions, low profit margins, rising costs, the need to repay debts incurred in the last drought or flood, and the myriad daily pressures of farming. We need to better reward farmers who make these investments, and to offer incentives for continued investment in this type of action between droughts.

Regenerative farming

One investment being made by many farmers across Australia is the adoption of regenerative farming, in which the entire farming system is re-oriented with a goal of better using natural ecosystem processes to support production, and of better matching production to land capacity through different climatic conditions.

Early research findings suggest that engaging in regenerative farming can improve drought resilience. But shifting to use of this approach to farming takes a lot of time and investment; before asking farmers to make fundamental changes to the way they farm, we need more research that critically examines when, where and how different farming systems can help safeguard against drought.




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The lessons we need to learn to deal with the ‘creeping disaster’ of drought


As well as helping farmers invest in actions to increase resilience to drought, we also need to consider the best ways to support those who are suffering severe psychological and financial stress. For many farmers, supporting them to cope with drought and stay in farming is the best decision. But for others, the best decision can be to leave farming altogether.

The decision to leave farming is understandably one of the most challenging times in a farmer’s life, and often happens when their well-being is low and they are experiencing psychological distress. This means that the quality of help they receive during this time can make a big difference in how well they cope. Services such as the Rural Financial Counselling Service have a vital role to play at all times (before, during and after drought) in giving advice to farmers weighing up the agonising decision to stay or leave.

If you want to help farmers, keep supporting relief funds – they provide essential help during the worst of drought. But also tell your local politician that you support investment in long-term programs that help farmers improve their resilience to the next drought, and the one after that, and that recognise and reward the investments farmers are already making in doing this.

The ConversationIf we truly have our farmers’ well-being at heart, we should be taking drought action in wet years as well as dry, and in good times as well as bad.

Jacki Schirmer, Associate Professor, University of Canberra; Dominic Peel, PhD Candidate in Public Health, University of Canberra; Ivan Charles Hanigan, Data Scientist (Epidemiology), University of Sydney, and Kimberly Brown, PhD Researcher, University of Canberra

This article was originally published on The Conversation. Read the original article.