Time to shake up milk prices, Saputo boss says

The heads of Australia’s three largest processors - Saputo, Fonterra and Bega Cheese - in a wide-ranging discussion at the Australian Dairy Conference in Canberra identified pricing systems as one of the issues that needed to be sorted.

But there appears to be a split about how that will be approached - with Saputo and Bega indicating simplified contracts as the solution and Fonterra talking about offering a range of price “portfolios” to farmers.

The introduction of a mandatory code is also driving the change, with the draft code proposing a requirement for all processors to release a standard form agreement and minimum prices at the same time.

The standard form agreement would include a base offer farmers could accept or use to negotiate with processors. But each processor would have its own standard form agreement and farmers could negotiate terms with processors.

Saputo chairman and chief executive officer Lino Saputo Jr said Saputo would be offering farmers the choice of five or six programs next year and there would be no special deals for select suppliers. “I will say this categorically there will be no special deals beyond those programs,” he said. “So any of those large corporate farms that want to have a sideline deal, they should not do it with Saputo Dairy Australia because we are not going to be doing those things.

“We tell our suppliers on an ongoing basis we have one class of farm whether you are producing a hundred million litres or you are producing a billion litres of milk, we have one class of farmers.”

Mr Saputo said from July the former Murray Goulburn and Warrnambool Cheese and Butter programs would merge with five or six simpler programs offered.

Mr Saputo acknowledged that the company had not grown supply above 1.6 billion litres since taking over Murray Goulburn last year.

The company has set itself a target to get up to 2.1 billion litres of milk in three years.

“We are confident we are going to get there in terms of processed milk,” he said. “Out of the gate, we haven’t grown our milk base from the 1.6, only because we are sort of changing how milk prices are communicated.”

Mr Saputo said it was rebuilding trust with suppliers that the opening price was the guaranteed minimum price they would receive for the year.

“(Last year) we came out with an opening price that we believed was reflective of the dairy markets and we came out first,” he said.

“And we did it to inform our suppliers that they shouldn’t be overly focused on opening price, rather they should be more concerned with closing price.

“We made a guarantee we would be paying a leading price for dairy at the close of the year.

“Now, of course, it was very easy for some of our competitors to have a higher opening price than what we had.

“And some of the suppliers criticised us - there was a great opportunity for Saputo to collect more milk had they had a higher opening price.

“And I reminded them that’s not responsible on our part.”

MORE ON MILK:

Mr Saputo said the opening price was the number on which farmers could build their budgets for the year.

“We are not going to be taking a step down; we are not going to be doing a clawback,” he said.

Mr Saputo said he was optimistic that once the company convinced suppliers it was “honourable and ethical” it would collect more milk

“But it takes a fair bit of time to build the confidence,” he said.

Mr Saputo said the company had taken the same approach after it took over Warrnambool Cheese and Butter in 2014 and had grown milk intake by 25 per cent in the following four years.

“I am still optimistic that within the three-year period we will get to 2.1 billion litres of milk processed in our facilities,” he said.

“And why is that number important because that gets us to a capacity utilisation somewhere around 95 per cent, which makes facilities that much more efficient and effective.”