Australian dairy farmers have reason to celebrate.
The future of milk trading is looking brighter.
Recently, a key first step has been taken that delivers monthly milk price transparency and competition, as the Australian Milk Price Initiative (AMPI) ran its first regional milk spot markets.
Trading was done on the Mercari platform, owned and operated by the Financial and Energy Exchange.
These regional spot markets deliver the monthly price transparency necessary to enable a forward financial hedging market like those seen in New Zealand, the US and Europe.
Such financial markets already enable dairy farmers and processors to lock in prices up to three years forward for some of their milk.
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As the national representative body for dairy farmers, Australian Dairy Farmers (ADF) has advocated for and sponsored the AMPI and encourages dairy farmers to take advantage of the trading platform.
Not only will the AMPI empower dairy farmers when they sell milk, it will also increase transparency and build trust.
As said at the launch, "there is no more transparent price signal than an open market price!".
The benefits to the dairy industry do not end there.
The AMPI will improve risk management across the supply chain with back-to-back pricing from customer to processor to farmer, providing the ability to lock in margins across the chain.
Better margin and risk management enables better planning, which, in turn, drives investment and growth across the supply chain.
More investment means a strong dairy industry.
Among the concerns to emerge from industry consultations during the development of the Australian Dairy Plan was a call for 'New measures to increase transparency and help manage market risk, including the establishment of a functioning milk price market and new risk measures backed by government legislation'.
This is something the ADF has been helping to achieve.
At the ADF we have been working closely with government and industry to develop the AMPI.
Similar trading platforms are already operating for other agricultural sectors, including wool and grains.
Through consultation with industry bodies and the dairy community, and with a grant from the federal government, the new trading platform will allow Australian dairy farmers to leverage their competitive advantage.
In 2019, a pledge of $560,000 towards the development of a milk trading platform was one of the most significant election promises the dairy industry received from the Morrison Government.
While the launch of the AMPI is an important step in the right direction, the work is not over yet.
Seed funding is required for the AMPI's governance and operating model, as well as education for participants.
It is our view that these funds can come from the Improving Market Transparency in Perishable Agricultural Goods Industries Grant Program.
This program will run over three years from 2022-23 to 2024-25.
A total of $5 million of grant funding is available.
Ongoing investment and innovation are key to the future of the dairy industry.
With an open market where farmers can choose who they sell their milk to, at what cost, and on what terms the future is looking brighter.
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