There have been massive increases in costs in the dairy industry over the past year, as there have been across the broader economy.
Large increases in the cost of fertiliser, fuel, chemicals and labour has had a substantial effect on the cost of producing milk both for farmers and processors.
On top of this, many dairy farmers (and processors) have been very badly affected by flooding and continual wet weather, putting further pressure on profitability.
So what does all this mean? From a farmer perspective, it means that for most farmers costs have probably gone up by between 10 and 15 cents a litre.
There continues to be farmer exodus from the industry on a weekly basis and there are no signs of this slowing down without a major shift in price. Production across Australia is down by 3 per cent so far this financial year and processors are desperately short of milk.
Dairy farmers are not whinging for more money knowing that they will still continue to produce milk. Dairy farmers are waiting to see what price increases will be offered before deciding whether to continue producing milk.
There are plenty of attractive options for dairy farmers now besides just continuing to produce milk for little or no margin.
The returns from beef are extremely strong and there is the opportunity to grow and sell crops rather than feed them to cows. Options to sell or lease farms are also attractive.
It is very positive to see some processors paying additional money to farmers in May and June this year in light of the substantial financial pressures on farmers.
However, a 5c/L increase on July 1 would not even come close to what is required.
The bottom line is that if farmers don't receive at least another 10c/L, it is very likely that the shortage of milk will increase. And it is much harder and more expensive to attract farmers back into the industry than keep them there by offering an attractive price to stay.
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