Not quite a co-op but maybe close enough: publicity-shy ADFC poised for growth reveals its strategy

It's not technically a cooperative but Mr Hanks says Australian Dairy Farmers Corporation is about as close as it comes.

"When Murray Goulburn got sold, I started looking for the next best thing because Murray Goulburn was the be-all and end-all to me," he said.

Honesty, reliability and farmer ownership were important to Mr Hanks. Though he said MG had "screwed up", ownership was still the surest way dairy farmers could bring about change.

And, unlike MG, ADFC had enshrined another cooperative principle: equality.

Mr Hanks milks 400-440 cows at his Stony Creek farm and, as a larger producer of year-round milk, qualified for several MG bonuses.

"I actually felt awful getting more than my next door neighbour," he said.

"He was only milking 80 cows and he wasn't milking all year round and he wasn't doing this and wasn't doing that.

"In the end, he was supporting me and I thought that was wrong, so I wanted a company that was equal."

ADFC proudly does no special deals, has no bonuses or separate milk pools and its pricing system is devoid of complexities like volume charges and incentives.

Mr Hanks, now one of four ADFC directors, said he was instantly attracted to the transparent pricing system but had known very little about it before he joined two years ago.

It's not surprising. First, ADFC is extremely publicity shy and, second, it's only recently made ground in eastern Victoria.

"I was warned not to speak to you," Andrew Sutton, ADFC's new general manager told me on the phone.

But lifting its profile might be the only way ADFC can recruit enough milk to reach its target of 400-million-litres in 24 months from now.

ADFC currently collects 290m litres from 144 farms across Victoria: 33 per cent of it in the north, 44pc in the west and 23pc in the east.

While there is no requirement to supply "flat" milk, the payment system is less attractive for highly seasonal dairy farm businesses.

Unsurprisingly, given the lack of special deals or productivity incentives, small to medium-sized farms have been drawn to ADFC.

"About 75pc of our farms fall into the 1.4m-2.8m litre band, though we're certainly happy to take smaller and larger farms," Mr Sutton said.

"We don't have too many less than 1.4m but we have 14 or 15 that are greater than 4m."

Unlike traditional Victorian dairy co-operatives, ADFC does not require share offtake, only $5000-worth of shares redeemable on exit.

Nor are there dividends, just milk price step-ups. The other striking difference is ADFC's footprint. It employs just three full-time staff members and has no processing capacity of its own.

Instead, ADFC supplies yoghurt maker Chobani and long-term customer Procal Dairies year-round, and has short-term contracts with several dairy manufacturers.

Demand is growing for ADFC's milk and Mr Sutton said it already had customers who would take 350m litres for next season.

"We don't have any stainless, which is often seen as a criticism, but in the current climate I think it's a strength because we're not tied to our own manufacturing plant," he said. "We can sell milk to those that require it."

More controversial is its supply of other dairy processors but Mr Sutton said ADFC wasn't operating as a quasi milk pool that allowed the dominant players to avoid paying premiums to their own suppliers.

"The major guys use us to help balance their milk as opposed to any pricing incentives, I'm certain of that," he said.

How could he be sure?

"Because of the price they pay us. It's certainly not our major revenue stream," Mr Sutton said.

The low-cost, low-risk strategy works at a time when Australia's declining national farmgate milk production could leave processing plants underutilised.

"I hope the national figure stays above 8 billion but I don't think we've found our settling point yet," Mr Sutton said. "I hope I'm wrong."

He said he hoped the price ADFC could afford to pay farmers, slightly higher than most, would be enough to encourage existing suppliers to grow but it was always on the lookout for recruits who shared its cooperative ethos.

Back at Stony Creek, Mr Hanks said a farmer-owned milk buyer was essential to help set a benchmark price but, as the culture of the dairy industry had changed, loyalty based on principle alone no longer held.

"It's more than merely being a part of a corporation where the profits are given back to the farmer," he said.

"Obviously, price will be a major factor in attracting that supply."

Love agricultural news? Sign up to our free daily newsletter and start your day with all the latest in ag.