THE potential introduction of an independent market operator (IMO) for the Western Australian dairy industry to set and oversee a minimum farmgate milk price may be put to dairy farmers and milk processors.
Agriculture and Food Minister Alannah MacTiernan said on Monday she has told WAFarmers she is happy to meet with dairy farmers to try to establish how many wanted government intervention back in an industry which was deregulated in July 2001.
Ms MacTiernan is also seeking meetings with milk processor management representatives from Brownes Dairy, Lion and Harvey Fresh.
But maximum government intervention would likely be limited to an industry IMO which would determine and oversee a "reasonable" minimum price for fresh milk passing from farmer to processor, she said.
"That's the only way I can see it (government intervention) having legs, because we don't want to return to a regulated industry," Ms MacTiernan said.
She acknowledged many WA dairy farmers were going through a very difficult period, with consecutive years of high feed costs because of the Eastern States' drought and local water shortages, so they wanted to be paid more for their milk.
But while farm production costs had increased, Dairy Australia statistics indicated not all WA dairy farmers are going out of business because their cost of production exceeds what they are paid for their milk, she said.
Access to capital and farm management skills in adapting operations to suit prevailing conditions also played a role, based on Dairy Australia's information, in determining whether a farm was profitable or not, Ms MacTiernan said.
"Based on the information available from Dairy Australia the situation looks quite reasonable in WA," she said.
"I've told WAFarmers I'm happy to have a meeting with dairy farmers.
"I'm trying to get a feel for how many - what percentage - of our dairy farmers see a place for government intervention and what they think that intervention should look like.
"It would be a mistake to go back towards a regulated industry.
"The maximum intervention this government would accept is the introduction of some sort of independent market operator - like in the electricity industry - who would only regulate a minimum farmgate price for fresh milk.
"It would be up to this independent regulator to determine what a reasonable price is," Ms MacTiernan said.
She said introduction of a dairy IMO was not something the State government "would do lightly" and it was wary of intervening on the basis of "using a few very tough years as a base line" for the industry into the future.
"But I'm happy to meet with farmers to discuss it - what would be desirable is for all of the industry coming together to discuss it," she said.
WAFarmers claims the average cost of producing milk in WA is 51.6 cents a litre, but the average farmgate price for milk is 51.3c/L.
It has written to the three processors asking for a 5c/L increase for farmers.
The situation could get worse for some dairy farmers at the end of this month with some summer production incentive prices of up to 61c/L offered by processors, ending for the season.
A national dairy code of conduct which took effect on January 1, 2020, requires farmers and processors to act "in good faith" during price negotiations and to "have regard to the legitimate interests of the other party".
It outlaws parties acting arbitrarily, unreasonably, recklessly or with ulterior motives and sets a maximum penalty equivalent to $63,000 for each offence.
The code also requires processors to stipulate a minimum milk price for the length of a milk supply agreement and to "justify" the minimum price.
WAFarmers dairy section president Mike Partridge said dairy farmers "welcomed the minister's willingness to look at some form of minimum pricing structure and looked forward to working with her on it".
"We believe Ms MacTiernan's preparedness to discuss some form of market intervention is a call out on a market failure," Mr Partridge said.
"Our production costs have increased 10c/L over the past five years but the market has not responded to this.
"A lot of very good farmers are having a very difficult time."
Mr Partridge said WAFarmers' figures on cost of production and average farmgate milk price came from the Dairy Farm Performance Program and showed a "substantial increase" in price was needed for dairy farms to return to profit.
He said there was "not much" response from processors to WAFarmers' request for an extra 5c/L, but a meeting with Lion was scheduled for next week
Harvey Fresh has offered its suppliers an extra 1c/L.
