Dick Smith’s nationalistic brand announces its closure in the same month that desperate farmers plead with the public to pay a few cents more for their dairy products.

The question is, will Australians pay more for a cause?

Comments like “We’re with you” and the 2.8k heart emojis on Facebook do very little when you can’t feed your herd. It’s nice there is emotional support and the plight of farmers is recognised but what does it really achieve?

“I’ve never felt so ashamed and so desperate”- Jason Maloney, farmer

Country Valley Milk reached out on facebook two months ago asking people to sponsor a cow –they estimated that each cow will cost $1,350 to feed until the end of September. Those that have contributed are rewarded with images of their cows – Cow 84’s new calf was shared with their adopted family on facebook (named Splotch MacGonagall by the adopted family).

Farmer Jason Maloney started a GoFundMe page called Food for cows. In a video with the Illawarra Mercury, Mr Maloney breaks down explaining that asking for help is the hardest thing he has had to do – but there has been no significant rain in two years and he doesn’t have enough food or water for the herd. He has already sent part of the herd to market. “I’ve never felt so ashamed and so desperate,” he says. The video is hard to watch.

Interviewed on the Today Show Mr Maloney went on to say that if consumers were willing to pay “20 cents extra for a litre of milk that goes to the farmer, that’s all it takes.”

The farmgate milk price is the price farmers receive from processors for the milk they produce. There is no legislative control over the price milk processing companies pay with pricing deregulated in 2000-01. Milk prices are based on the milk fat and protein solids content of the milk supplied. According to Dairy Australia, the typical factory paid price for farmgate milk is $0.49 in NSW ($6.81 kg of milksolids (kgMS)), $0.38 in Victoria ($5.04 kgMS), $0.60 in Queensland ($8.22 kgMS), $0.37 in South Australia ($5.19 kgMS), $0.51 in Western Australia ($7.06 kgMS $0.39 in Tasmania ($4.97 kgMS). Both Coles and Woolworths sell their home brand milk (2 litre) for $1 per litre. The named milk brands tend to move between $1.50 and $2.93 per litre.

Will they really get more? 

But will buying the more expensive branded milk guarantee that farmers get more? Choice says it is hard to say. The two largest processors are Fonterra Australia (owned by a New Zealand dairy cooperative) and Italian company Parmalat (whose owners are French). Another large player, Murray Goulburn recently sold to Canadian company Saputo. Lion is owned by Japanese company Kirin. The processors purchase the milk from farmers and produce the varying products. Parmalat for example supplies Pauls, Farmhouse Gold, and Ski. Fonterra produces Mainland cheese, Bega, Western Star and Perfect Italiano.

The price of these brands varies but the price paid by the processor to the farmer is the same.

The final price to the farmer depends on domestic and international demand. For example, Fonterra’s opening average milk price of $5.85 per kilogram of milk solids (kgMS) for season 2018-19, with the updated forecast closing average milk price range to $5.85 to $6.20kgMS.

Choice says that consumers can support brands that process their own product and buy products from farm controlled co-operatives (co-operatives are owned by the farmers so not only do they get the farm gate price but a dividend). But above all, buy more Australian made dairy product.

Fundamentally, however, companies pay farmers based on demand and supply.

In July, Dick Smith announced that his Dick Smith Foods business will close down. In the 5 page letter to Woolworths, Coles and Metcash, Mr Smith places the blame for his food group’s failings at the feet of Aldi, heading the letter “Secretive German Company Now Most Trusted Brand in Australia.” ‘Secretive’ because Aldi is a family owned German business and not publicly listed.

Smith cites Windsor Farms as an example of the negative impact of a low price model. “Windsor Farms was forced on the road to bankruptcy when Aldi started selling Australian canned beetroot at 75 cents per can. This product had typically sold for $1.30 per can. Very quickly, your companies [Coles, Woolworths, Metcash] matched the price – I can understand you had to do this. Within six months, Windsor Farms and their Cowra Cannery (the only Australian owned cannery remaining) had to close. All the loyal, hard-working staff, many of them Aussie battlers, lost their jobs. Investors lost millions of dollars, and small businesses in the Cowra area never got their payments, with substantial amounts owing. I understand the unsecured creditors were over $750,000. The local transport company in Cowra lost $550,000 and their local electrician lost nearly $30,000. The main shareholder lost over $6 million. He was a wonderful Australian who did everything he could to keep the company going.” The collapse of the Cowra cannery occurred in 2013. Spice Masters Australia already bought Windsor Farms.

Not surprising

The demise of Dick Smith Foods however did not come as a surprise to analysts. The company entered a mature, competitive and crowded market with nationalism as its differentiator – Australian grown, made and owned. The group Ozemite sells for $2.69 per 100g whereas market leader Vegemite (bought by Bega in 2017) is $2.23 per 100g for the same size. Not all of the product range are above the market leader’s pricing point but most offer little incentive to switch brands beyond a perception of doing the right thing.

Since Aldi gives the perception that they give ‘ordinary Australians’ a ‘fair go’ at the checkout, people trust them. They introduced competition to a sector where there was little choice between the major players. Consumers have responded well despite the reduced range, a lack of known brands and service extras, as long as they can pay less and get the Aldi special buys.

Good cause > Price

The bottom line is that: consumers will always prefer products that benefit a cause. Cage free eggs are a case in point. The demand for cage free eggs has grown despite its expensive price. This may be because no one wants to support animal cruelty. In addition, consumers perceive free range eggs as healthier options.

Unity is one of the great things about Australia.  Australians, either individually or through their businesses, are always willing to do something to make a difference. The Government is also there for support but in a more rigid and structured way. Business can be an exceptional driver of change because of the reach and influence they have. But ultimately it is our capacity to innovate and find new solutions to problems that will succeed. If we become competitive, we find ways to deliver what the market wants. Take the example of Just Veg (owned by Queensland based Kalfresh). To prevent wastage, the leading vegetable production company turned their ‘wonky carrots’ into perfectly bite-sized carrots for lunchboxes.

You can help farmers in need right now by donating to Rural Aid’s Buy A Bale program, Aussie Farmers Foundation, Thirsty Cow, and Need for feedto name a few. Woolworths announced a $1.5 million donation to Rural Aid on 29 July 2018 (the store also came under pressure on social media to donate to farmers the $71 million they are estimated to make from the plastic bag ban).

Adviser note

The NSW Government announced an additional $500 million in drought assistance. The emergency package includes $190 million for the introduction of transport subsidies of up to $20,000. This will cover the cost of transporting fodder and water. Applications for the transport subsidies will begin processing on 6 August. See the Drought Hub.

___________________________________

Click here to LIKE US ON FACEBOOK 
Click here to FOLLOW US ON TWITTER