How farmers are dealing with volatility

1
How farmers are dealing with volatility

• Max Roberts
• Chairman

2
Volatility in the dairy industry

• Volatility is nothing new for our industry
• High input industry that is highly exposed to
  trade
• 45 of production exported, significant imports
• Farm gate prices are driven by international
  markets
• International market accounts for just 7 of
  world milk production
• Dairy trade is highly distorted by Nth Hemisphere
  policies
• On farm, bought in feed accounts for 30 of cash
  costs
• Subject to grain and hay market volatility

3
International dairy commodity prices
Source Dairy Australia
4
Income volatility
Source ABARE
5
Income volatility not just milk price
Source DA and ABARE
6
Volatility and uncertainty is increasing
External environment
Exchange rates
Weather
Inputs
Grain
Interest rates
Farm Financial People Physical
Govt policies
Water
Fuel
Fertilizer
Community attitudes
Economic conditions
New technologies
7
How are farmers dealing with volatility

• Dairy is a highly adaptable production system
• Water vs grain supplements
• Strategic use of inputs water, fertiliser
• Diversified feed sources new supplements
  crops
• An integrated supply chain
• Longer term strategic relationships forward
  contracts
• Options for selling milk - contract vs supply
  agreement
• Relationship with dairy companies
• Prioritising business resilience
• Whole of farm planning and scenario testing
• Production not the key objective
• A longer term view of profitability and wealth
  creation

8
Increasing use of FMDs
At 30 September 2009 3,707 dairy farmers held
Farm Management Deposits totalling 214 million
Source DAFF
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Typical Australian dairy production system ?

• A continuum of systems operating across Australia
• Many farms feature elements of all these systems
  - more flexible and opportunistic

10
A range of feeding systems
Source National Dairy Farmer Survey 2009
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How are farmers dealing with volatility

• Highly adaptable production systems
• An integrated supply chain
• Prioritising business resilience

12
How is the industry responding?

• Good risk management requires an understanding of
  the external environment
• Dairy Moving Forward Taking Stock
• Dealing with Today, Planning for Tomorrow (DAFF)
• DairyLIVE
• Situation Outlook
• Grain Hay report
• Building capability
• NCDEA
• People in Dairy

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Dairy Moving Forward Taking Stock

• 3000 Taking Stock sessions since 2004
• Service providers trained
• Collaboration with
• DAFF
• DPIV
• dairy companies
• service providers

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DairyLIVE

• Linking the industry through technology
• Cost effective
• Access to international expertise
• Funding from DAFF
• Optimising networking and information reach

15
Situation and Outlook

• Whole of supply chain analysis
• Shared understanding of operating environment
• Communicated via reports and presentations
• Wide target audience
• Farmers
• Service providers
• Government

16
Farmers dealing with volatility

• The industry is developing the tools and
  information to help farmers
• Understand the context
• Understand the total farm position
• Test against potential scenarios to find the
  fault lines
• Farmers are highly professional business owners
• Employ 5 to 6 employees
• Generate enormous economic benefits

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The way forward

• Opportunity is out there
• The industry has proved its ability to compete
  and adapt
• Well positioned to benefit from future demand
  growth
• Farmers will continue to adapt to volatility
• Farms must run as a business
• Require clear signals and information
• Continue to build capability
• Policy settings will play an important role
• Certainty of access to resources
• Regulation