New milk pricing index in formation

New milk pricing index in formation

Grow Queensland
AUSTRALIAN Farm Institute executive director Mick Keogh.

AUSTRALIAN Farm Institute executive director Mick Keogh.


Mick Keogh says the federal government’s proposed milk pricing index could provide valuable information to farmers on the dairy market outlook, to assist decision-making.


AUSTRALIAN Farm Institute executive director Mick Keogh says the federal government’s proposed milk pricing index could provide valuable information to farmers on the dairy market outlook, to assist decision-making.

He believes the pricing system could also deliver improved transparency for dairy farmers and industry, provided the underpinning data and information is sufficiently robust and objective.

But Mr Keogh said if the milk price index was structured properly, it also had the capacity to support a derivatives trading market and price hedging, which may help milk processors offer fixed price contracts to dairy producers.

“This is the case in the NZ market which is dominated by Fonterra,” he said.

Mr Keogh said he also supported the government expanding the concept to support improved transparency for other agricultural commodities, not just milk, and create price indexes for farm inputs like fertiliser or chemicals, again so long as the underpinning data was relevant and objective.

The potential move to start using official indexes for other commodities and farm inputs has been touted as a policy priority by SA rural Liberal MP and chair of the Coalition’s agricultural backbench committee, Tony Pasin.

It’s understood other farm commodities that may want to develop a similar pricing index, like a tool to asses a wool futures market, and to assist producers’ decision making and to help gauge market signals, would initially need to garner support through farm representative bodies and then approach relevant levy funded Research and Development Corporations, to potentially implement or operate.

It’s understood Dairy Australia has not given offered its support to potentially operate any milk pricing index due to a conflict with its role managing the industry’s R&D and marketing levy-spending program.

An allocation of $2 million to initiate a new milk pricing index was unveiled by Federal Agriculture and Water Resources Minister Barnaby Joyce in the government’s broader response to last year’s dairy pricing crisis.

At the time it was first announced, NSW Liberal MP Angus Taylor said a robust transparent pricing index was a critical element of the NZ dairy industry, which he was heavily involved in, and it was calculated by global financial agency Standard & Poors.

Mr Taylor said the price for exported milk powder and other exported dairy commodities sets the local milk price - but farmers need greater transparency of “what that export milk price really looks like”.

“The New Zealanders spent many years perfecting the methodology for setting that price index,” he said.

“We need a transparent price index here which allows farmers to make advanced decisions about their production, like their feeding regimes and other critical decisions.

“We need a price index that’s accessible to all farmers and industry participants.”

The milk pricing index is currently subject to a formal government tender process that opened on May 5 and runs until May 30, this year.

It is aiming to identify a suitable organisation to operate the pricing index and oversee its design.

Another element of the tender process, that wasn’t originally touted when the initiative was first announced, but has resulted from subsequent consultation with industry, is to deliver extension and education services to help dairy farmers and industry understand how to use the pricing index and apply it to on-farm business decision making.

Dairy Australia said in a statement that it had had not submitted a tender but would support the delivery of the index and use it to provide meaningful insights to farmers in addition to the R&D and marketing dairy levy body’s current market analysis work.

Dairy Australia said the Department of Agriculture and Water Resources were leading the process and “Dairy Australia continues to support them in the development and implementation of the milk price index”.

Australian Dairy Farmers (ADF) said the government committed to their election promise in the 2017-18 budget to create the milk pricing index and had been liaising with the Department to assist its development.

“An independent milk price index is expected to allow for aggregated milk price signalling to the farmer without the potential for confusion by milk processors,” a statement said.

“This will better allow farmers to understand what to expect in the future when it comes to the price paid to them for their milk.

“Having a milk price index will put Australia in line with the rest of the world.”

ADF said it believed the dairy industry needed earlier and clearer pricing signals for farmers and would work with industry bodies to build a system that “builds resilience, rather than leaving farmers vulnerable”.

“In isolation, this tool will not fix the problems with the dairy industry,” ADF said.

“However, when combined with the Code of Practice, the Effects Test and used alongside other reforms such as the Small Business and Family Enterprise Ombudsman they will help level the playing field to ensure fairness along the supply chain.”


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