As the consumer watchdog prepares to investigate the dairy sector, a Charles Sturt University (CSU) academic has highlighted the need for good business management skills in the industry.
Head of CSU’s School of Agricultural and Wine Sciences in Wagga Wagga, Professor David Falepau, has welcomed the move by the Australian Competition and Consumer Commission to undertake a new, broader inquiry into the industry from November.
In the meantime, Professor Falepau, who specialises in agricultural business management and agri-food and fibre value chains, says good business management skills will be absolutely crucial for dairy farmers dealing with the fall-out from cuts to the farm-gate milk price.
He’s identified two key questions for dairy farmers and processors to consider as they work their way out of the current situation.
“The first is for dairy farmers, do they fully understand the difference between production risk and market risk and know how their business may be exposed to either or both of these?
“It appears that many dairy farmers, by the nature of their supply contracts with processors had exposed themselves to the full extent of both the production and market volatility, without a clear understanding of the upside and downside consequences to their financial position that exposure might present,” Professor Falepau said.
“The second question is probably as much for the processors to consider as the farmers. Were the risks inherent in the various supply contracts being used between farmers and processors fully and sufficiently disclosed?
“Perhaps also along these lines, were the processing companies’ market demand and price forecasts responsible and associated volatilities sufficiently disclosed to their contracted suppliers?”
In regard to the claw-back of money paid by processors to farmers Professor Falepau said, “Having a system by which primary producers have the opportunity to be rewarded commensurate with the market is okay. One assumes that if the market had paid more than the processors had predicted, that would have been passed back to the farmers too.
“It appears that the Murray Goulburn and Fonterra procurement systems are based on this assumption,” he said.
“I do believe further investigation is warranted into whether Murray Goulburn or Fonterra acted responsibly and disclosed fully the risk exposure to their dairy farmer suppliers.”