Farmers are forming new alliances following the dairy crisis. And while some commentators have declared the era of dairy co-operatives all but over, co-operation itself is alive and well, with the emergence of collective bargaining groups, clubs and even farmer-owned companies. Australian Dairyfarmer magazine chatted with three farmer groups to learn more.
The farmer company
The Dairy Farmers of Victoria Consortium (DFVC) has ambitions every bit as grand as its name. "We want to ensure the sustainability of the dairy industry," DFVC co-founder Daniel Hoch said.
The 30-year-old farm adviser teamed up with Northern Victorian dairy farmer, Dean Kendrick, in early 2018, determined to bring change.
"We asked ourselves 'how can we get more for our milk, not 'can we'?" Mr Hoch said. "The answer was to provide milk that processors really want."
Accordingly, DFVC manages its own quality control, guaranteeing somatic cell counts will stay under 200,000 and has fitted sensors to vats that continuously record compliance with temperature standards.
We asked ourselves 'how can we get more for our milk, not 'can we'?
- Northern Victorian dairy farmer, Dean Kendrick
Because "processors are in the business of processing" according to Mr Hoch, the consortium will soon manage its own transport, too.
DFVC also plans to market animal welfare and environmental credentials.
"We're working with the RSPCA to build an auditing process," Mr Hoch said. "We want to have a stamp like the one used on cage-free eggs to show the consumer that farmers love their animals."
Mr Hoch said he hoped RSPCA accreditation would benefit the entire industry.
"We want to bring the industry up with us," he said. "Our marketing will showcase our farmers because we can't speak for others but we won't be denigrating other farmers."
The group's membership is growing rapidly. In its first season, DFVC supplied 45 million litres from 24 farms within a 100-kilometre radius of Echuca, Vic, and expects to double that in the current season.
Expansion plans include supply from the Kiewa Valley and Gippsland. The consortium aims to meet its ultimate goal of managing 200 million litres from 100 farms within three years. But it won't be expansion for expansion's sake.
"We will only do what we can manage," Mr Hoch said.
"We don't want everyone; we want farmers with the attitude of wanting to develop progressive farming businesses who are passionate.
"The consortium will work in perpetuity while people are being selfless and concerned about others."
The collaboration club
Recognising that farmers keen to collaborate are often stymied by overwhelming logistics, Friesian is offering a streamlined farmer to processor service.
Fronted by Simon Thornton, a handful of high-flying investors comprising the "Friesian Club" bought McColl's Transport about a year ago with the long-term goal to "build something great".
"Friesian's plan is to go deep in dairy," Mr Thornton said. "We think that it's a good long-term industry that needs to succeed in Australia and we want to be part of driving that success."
One of the investments has been in supporting farmer clubs.
"A series of groups of farmers have come to McColl's or Friesian saying, 'Look, you obviously see a future in this industry, how can you help us to succeed? We don't want to be individual farms dealing with individual processors.'
"We're working with groups of farmers who live in proximity, who believe in the same farming approaches and want to work together."
McColl's handles payments to farmers, quality testing, transport and even negotiations with processors.
"We have the systems that will set farmers free from having individual relationships with processors," Mr Thornton said.
"We specifically think of them as clubs not co-ops because I think it's important for groups to exclude people they don't want. You're in charge of who is in your club.
"The tone of a co-op is 'Give us a call and we'll start picking you up on Monday'. It's the lowest common denominator."
Friesian is only seeking to recover costs with its support of farmer clubs. It makes money by having McColl's collect the milk from farms.
"McColl's collects the milk on a modelled cost basis, we're very transparent," Mr Thornton said.
"We're not charging any more than the normal cost of running the trucks.
"As McColl's we are looking for stable work in an area that has a long-term dairy future.
"We want to help these farmers to find some way of working together other than they had in the past with the all-encompassing co-operatives."
To give farmers greater supply choices, Friesian is investing in staging points in western and northern Victoria.
"Friesian's goal is to transform the value of milk in some way," Mr Thornton said.
"Where we have milk that is geographically cut off from the processors who have the most value for it, we are looking for ways to invest in infrastructure to change the economics of logistics and therefore the milk.
"With staging stations, we can collect that milk from farms, chill it and put it into larger line-haul tankers, so we can take it further.
"Farmers in that club get a greater choice of where their milk can go, rather than effectively being trapped by the local monopoly."
Mr Thornton said he believed the dairy industry could become more efficient and profitable.
"I think Australia should have a competitive advantage on a world scale in dairy," he said. "We have a very inefficient industry and enormous inefficiencies just on the transport side.
"We'd rather have some low-cost thin-layer technology that allows us to pick up the milk and deliver it to the most efficient place rather than delivering it miles away.
"If we could just get transparency and allocate the milk to its highest value use every day of the year in an efficient way, then farmers and processors would make more money.
"There are days when the processors are effectively being force-fed milk that they don't have any good use for and they sell it onto the secondary market or swap it away and it becomes part of their balancing cost.
"Balancing costs can be huge. Balancing from the industry curve to flat, this year, on the Victorian market, with a pretty benign outlook, costs two cents per litre and rises exponentially with more seasonal production. When you get to three-to-one, it becomes six cents per litre.
"We've all got to work out how to reshape the industry so that it will prosper."
The modern co-op
Dairy Farmers Milk Co-op (DFMC) negotiates supply contracts on behalf of 220 farms in Queensland, New South Wales, Victoria and South Australia.
DFMC executive officer Mark Kebbell said that success was underpinned by a powerful agreement founded on the need to make its co-dependency with processors work for all involved.
"One of the things that makes our milk supply agreement work, unlike many collective bargaining groups, is that Lion is obliged to talk to us," Mr Kebbell said.
"If we're in dispute, both of us are bound by the determinations of an independent expert as opposed to mediation, which can 'chop the baby in half' and means nobody's happy.
"What that means is in fact a very mature negotiation. If we know that someone else will potentially decide the right answer, we might as well submit something that's justifiable.
"It can be expensive. We're fortunate to be well resourced, which means we can go to dispute resolution and successfully stand up for our position."
Mr Kebbell believes DFMC is not destined to fail in the same way as other farmer co-operatives before it.
"We're not vertically integrated," Mr Kebbell said.
"Is a farmer board the right entity to run big operations around the country, big relationships with supermarkets managing brands or international relationships?
"You need to be big, you need to be a Friesland Campina or a Fonterra and have decades of experience and resources on the ground to do that well.
"We don't have quite the same risks in that we're a representative group."
Mr Kebbell said the co-operative's relationship with processors was inherently adversarial, despite the need to form a partnership.
"While we have to come to agreement because we are codependent, we start from different positions, there's a mutual respect for each other's perspective," he said.
"Every year, we negotiate milk policy, which covers the layers inside the pricing mechanism component ratios, quality policies and location as well as the price.
"We act unashamedly and determinedly for farmers. That said, our agreement and the dispute resolution procedure mean that we work with facts rather than emotion because that's what the independent expert will use.
"To negotiate with any strength, we need to replicate exactly other processors' payment structures in all our regions.
"Then we apply our farmer volume, quality and location data to that payment model and see what it would pay. The announced price can be a complete irrelevance."
And while farmers can deal directly with Lion Dairy & Drinks rather than be represented by the cooperative, Mark Kebbell said DFMC's value was clear.
"There are farmers who feel that they don't want or need representation and that's okay," he said.
"Sometimes those farmers congratulate us for the outcomes we achieve for them, even though they're not members, and it's hard to know what to say in return.
"Ultimately, DFMC farmers know we have a seat at the table and that if they want us advocate on their behalf, we will. With so little trust throughout the industry, that means a lot."
This story first appeared on Australian Dairyfarmer