Gippsland dairy processor ups the ante on milk fat payments

Burra chief executive Grant Crothers said the company was offering all farmers the opportunity to be paid on a 1:1 fat to protein ratio.

The 1:1 fat ratio was a simplifed milk payment, whereby both butterfat and protein were of equal value.

Jersey Australia president Chris MacKenzie, Timboon, complimented Burra on its decision.

“That was a major thing we were looking at, because of the way world prices have been for some time,” Mr MacKenzie said.

“I think the other processors will certainly watch it with interest.

“It’s a bold stance [Mr Crothers] has taken.”

Burra chief executive Grant Crothers said the move was an important initiative, which reflected the market value of components. 

“This is a very important initiative that reflects the market value of the components,” Mr Crothers said.

“We expect those milking Jersey or cross bred herds to be able to grasp the opportunity with both hands but we also are signalling to others to start feeding for fat.”

The announcement came with details of Burra’s opening milk price range for the coming season of $5.60 - $5.90kilogram/Milk Solids, an eight per cent increase over last year’s opening price.

Mr Crothers said the price included the annualised portion of the commitment bonus, offered in July 2017.

Burra was also offering its suppliers a $6 Fixed Farmgate Milk Price initiative and had extended the deadline for expressions of interest until June 22.

Earlier this year, Jersey Australia said it wanted to see a shake-up of the country’s milk pricing system, to make it simpler, fairer and with more emphasis on the value of milk solids.

Board member, Ringarooma, Tasmanian dairy farmer Jane Sykes said two reports commissioned by the organisation showed current pricing systems didn’t necessarily represent the current market value of milk components.

“We want price parity between butterfat and protein,” Ms Sykes said.

“The fairest and simplest thing to do is make it a single price for milk solids, rather than individual ratios for fat and protein.

Jersey Australia gained the support of the Farming Together program to prepare one of the reports, detailing the disparity between market demand, processor returns and farm gate earnings.

Burra Foods sought a copy of the report as part of its decision-making into the price differential Jersey Australia general manager Glen Barrett said.

“Burra Foods was very pro-active in hunting out that report. I think it’s really good,” Mr Barrett said.

The study found that high-density milk, that with higher milk solids, fat and protein levels (called components), were more cost-effective to transport and process.

This higher-component milk was 8.5c/kg milk solids or 0.6c/litre cheaper for processors to cart and handle.

Milk from Jersey cows is typically higher in components than the dominant Australian dairy breed, Holstein-Friesian cows.

Jersey Australia president Chris MacKenzie, Timboon, said Jersey breeders would welcome the move to provide them a fairer return for their higher fat content milk supplied to Burra Foods. 

Global shortages of butter and milk fat products for processing had led to increased emphasis on fat in farmer payments, however payments for protein still outweighed those paid for fat.

"Burra Foods should be congratulated for being the first processor to move to bring the fat payment in line with protein and we call on all processors to provide payment equality for fat and protein milk components," Mr MacKenzie said.

It appeared Burra was seeking to capture more butterfat for the products it was making.

Mr Crothers said the decision reflected the strong returns for fat.

“We have seen consistent strength in the demand for fat products across our product range and want to both reward and incentivise our supply partners accordingly,” Mr  Crothers said.

In a letter to suppliers, Mr Crothers said farmers would be aware of the value of butterfat and depressed value of milk protein in the global market.

‘We firmly believe this trend is sustainable and will continue,” Mr Crothers said.

He said while market volatility failed to abate, Burra continued to experience strong demand across its product range and was pleased with the success achieved in penetrating new markets.

The deal would provide the opportunity to increase the value of milk.

Mr Crothers said it was a very important initiative that reflected the market value of milk components. 

“We expect those milking Jersey or crossbred herds to be able to grasp the opportunity with both hands, but we also are signalling to others to start feeding for fat,” Mr Crothers said.

“Altering components on farm is not a quick or simple exercise and we recognise that many supply partners have geared themselves towards protein production which is why we are providing the option of either payment system.

“Offering both payment ratios provides our Milk Supply Partners the opportunity to increase the value of their milk, regardless of breed or feed.”

He said Burra was not looking to grow significant volumes of milk in the coming season, but believed the new payment ratio would attract interest from higher fat producing herds.

The company would be happy to sign them up.

“We have invested heavily in capacity and capability to meet our increasing demand and believe that higher fat producing herds will support our continued growth,” he said.

Paul Mumford, Wron Wron, Gippsland, milks a Jersey herd of 600 cattle, over two properties.

“I’m sure it’s going to be welcomed,” Mr Mumford said.

“It’s giving farmers a clear indication on where to breed and it allows them to take advantage of a good milk price structure, coming into the next season.”

He said Jersey Australia had called for that exact outcome.

‘It’s given us to options and you would think most Jersey farmers would pick the one to one ratio.”

He expected other processors to look closely at the decision.

“It’s a very competitive milk market at the moment and I think all processors are coming up with strategies to secure their supply and potentially look for new milk.

But he said he was disappointed Burra had included bonuses from the 2017 season, which “muddled up the milk price.”

“On the other hand, there was good news, around farmers locking in a $6 milk price, for three years,” Mr Mumford said.

“That’s generally indicating where the milk price should be heading and gives greater certainty in budgeting.”