At the height of the drought in 2018, supermarket chain Woolworths led the way and introduced a drought ‘tax’ to support dairy farmers during this difficult time. Industry dairy bodies like eastAUSmilk have supported this initiative and applauded Woolies and its CEO Brad Banducci for leading the way.

The levy was intended to be a temporary measure and to support dairy farmers and their families who were facing financial hardship, with farmgate prices that were (in many cases) below the cost of production.

This additional payment for their nutritious milk ensured that many dairy families did not need to sell or leave their farms and were able to continue supporting their local rural and regional communities.

Woolworths has announced that the ‘on-pack’ drought levy label will be removed from its 2L and 3L milk in the coming months, while ‘the additional 10 cents per liter will continue to be passed on to farmers until at the end of the dairy year.

The processors (and their dairy producer suppliers) who are directly impacted by this announcement are Bega, Fonterra and Lactalis. Their decisions will have a direct impact on how this announcement is perceived and the long-term impact it will have on the dairy value chain.

Lactalis has indicated to its dairy producer suppliers that it will continue to provide this payment as part of its farmgate price until June 2022 while continuing to review and monitor the price to be included in the future. Its farmer suppliers will not be “disbursed” during this period and will continue to receive this amount. This is a positive statement and hopefully other processors will follow suit and give similar assurances.

Although current dairy conditions are generally positive, there are still significant issues facing the dairy industry. This includes market failure issues that have not been addressed and have been highlighted in recent reports such as those published by the ACCC. These issues continue to preoccupy the industry value chain in general.

There is the additional impact that increased input costs have on the farm and the farmgate price (just refer to the increased cost of fertilizer and diesel, the price of which doubled in course of the last 12 months).

The increase in the drought tax that retailers have given to dairy suppliers has been an important element in ensuring the continued viability of many dairy farms in recent years. Assurances from processors (such as that given by Lactalis) that dairy farmers’ monthly milk vouchers will not decrease in real terms will be essential.

It will also be a test for the mandatory Dairy Code and “good faith” provisions that are part of negotiations between processors and their suppliers.

It has been suggested that the Code should also be extended to include retailers and now may be the time to reconsider these discussions. With the upcoming federal election, there may not be a better time to raise questions like this.

Questions such as how the dairy industry can remain viable for future generations of dairy farmers need to be addressed and the timing of Woolworths’ announcement could provide that opportunity.

Rest assured however that dairy farmers will continue to provide fresh milk so that the community can continue to purchase nutritious milk and dairy products in their supermarkets and at the dairy.

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