What business are you in?Published on 21st November 2018
It’s tough being a dairy farmer right now. Any farmers reading this might say it’s always tough, but extended drought conditions that have sapped emotional and financial resources in many regions are taking a particular toll at present. Dairy Australia is now forecasting this season’s milk production will be back where it was in the mid-1990s.
In every other sense, the dairy industry seems very different to the way it was two decades ago. Between 1990 and 2000 dairy in this country was on the rise – production through that period grew at an average rate of 6% annually. The industry growth was driven by strides in productivity that offset an annual decline in average farmgate price of 3% in real terms during the same period. There was no discussion about the price of milk in supermarkets – although the industry was already well on the way to deregulating the supply chain between processor and consumer.
As the industry grew it seemed accepted wisdom that it was exports that would be the way of the future. Industry bodies were focussed on lobbying government for favourable trade deals and policy settings that supported efficient milk production. There was a confidence that Australian dairy was ideally placed to competitively supply the growing Asian regions at our doorstep.
Fast forward to today and the mood around the dairy industry feels vastly different. With more extended dry periods hitting dairying regions and raising input prices, productivity gains have stalled. While in real terms farmgate prices have in fact been much more stable since 2000 than in the decade prior, volatility in income has increased with climate variability.
It would be nice to go back to the good old days when things were more stable, and dairy was the golden child of agriculture with seemingly boundless potential. Given the discussions recently about legislating how the supply chain works and even milk price increases, it seems some industry leaders feel they can somehow recreate those pre-2000 settings.
These days, when the cry goes out for higher milk prices the comparison is often made with bottled water to illustrate the injustice of $1 per litre milk. However, the comparison doesn’t make much sense from a consumer perspective. There are higher priced dairy products and more milk substitutes than ever – consumers have choices. Many have the capacity and desire to pay more if they receive a benefit – think organic or a2. Increase the price for what is essentially a commoditised, staple product and they may choose to pay it – or they may believe the hype and switch to almond, hemp oat or soy milk! The game hasn’t only changed on the farm – the consumer landscape is so different, and it’s not going back to the way it was.
Disruptions to business models are coming from all directions. Consumers are making choices on more than price. Perceived status (hence the high-priced bottled water), health and environmental benefits as well as animal welfare concerns are increasingly driving food purchase decisions. There are new online and offline players offering more competitive prices, greater convenience and complete traceability – neither supermarkets or dairy producers are immune from the changes.
Each time dairy hits the media as a victim of supermarket power or drought there are more comments about animal cruelty – and how wiping out the dairy industry would be a good thing for the planet. Farmers have always enjoyed high levels of respect and admiration from the wider community – but that goodwill is not a bottomless well. It may be whipped up temporarily with media coverage, but is sympathy really enough to sustain the industry into the future?
There is no captive market that can be tapped to support on-farm practices that aren’t valued or sustainable. Plant-based diets are increasingly popular and synthetic proteins are attracting lots of investment. To survive and thrive the dairy industry will need to raise it sights and really consider what business it’s in. Who will be paying for dairy in the future and why will they pay for it? What are the benefits of dairy that people have forgotten about or were unaware of? How will the industry help consumers feel good about paying more for – or even continuing to buy dairy products at all.
In an increasingly complex environment, perhaps the industry needs to sell more than milk and victimhood. Tapping into the what makes dairy special – for those that produce and consume it is key to a sustainable future – and the business models that make up the industry must continue to evolve to meet a changing world, not deny it.
Dairy is the business of conjuring a complete, natural nutritious food from grass that needs hardly any processing compared to those other “milks”. Dairy is the business of linking to centuries-old cultural and food traditions, but it has also innovated to create high-value food solutions to customers that were not dreamt of 20 years ago. At the same time, it’s the business of being part of a community, it’s healthy but also indulgent and delicious. It’s a great story to tell, but is it being told in a way that sufficiently influences choice?
Dairy must also be part of the solution to the environmental challenges we face – not just reducing impact, but talking about the carbon that can be captured in well-maintained dairy pastures, the bio-diversity being supported through silvoculture systems that combine livestock and trees, or the capture of renewable energy. The business you’re in is changing, does it have the vision and the model that will take it into the next 20 years?