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Tim Roache

Year of Award: 2017 Award State: Victoria Agriculture > Meat And Dairy
The Jack Green Churchill Fellowship to modernise milk price models and manage price risk in the Australian dairy market - Netherlands, UK, Ireland, USA, New Zealand

The Australian dairy industry has gone through significant structural change over the last 20 years. Total milk production has declined by 20% whilst the Australian population has grown by 33%. Macro factors, such as the millennial drought through the 2000’s, a stubbornly high Australian dollar and deregulation of the Australian dairy market have played a significant role in this decline.

However, there is another major factor contributing to Australia’s declining milk pool - milk price models and price risk management. Today, Australia’s dairy industry is barely recognisable from what it looked like Pre-2000. The two largest producer owned co-operatives that processed up to 50% of the nation’s milk no longer exist, market and seasonal volatility are far more extreme and dairy market regulations that existed are all but a distant memory. Yet, despite this transformational change, the Australian dairy industry still uses the same price model to transact most of the milk produced and the options available to manage milk price risk are very limited.

My Churchill Fellowship sought to investigate ‘Modernising Milk Price Models and Managing Price Risk for the Australian Dairy Industry’ and to do so I travelled to major developed dairy markets in the US, EU and New Zealand. Whist their industry structures and economies differ, they have many commonalities in the milk pricing and risk management space that we can learn from, adapt and apply to our industry. Key findings from these leading international dairy industries include:

  • Australia is the only major developed dairy nation not to have transparent dairy market information, particularly for milk and commodity pricing
  • Government plays a key role legislating, regulating and ensuring dairy prices and market data is published in the US, EU and New Zealand, but not in Australia
  • Dairy price markets, particularly milk price markets, offer price transparency, market guidance and are a primary enabler of price risk mitigation and modern milk price models.

As such, my Fellowship concluded that the Australian dairy industry needs to:

  • Develop and implement an Australian Milk Price Market

There are three aspects to the successful implementation of the Australian Milk Price Market:

  1. Establish an ‘Expert Working Group’ of industry experts to build the Australian Milk Market.
  2. Work with Government to legislate and regulate the collection and publishing of Australian milk prices to build a transparent and reliable Australian Milk Price Index.
  3. Develop an Australian Milk Futures Contract and subsequent milk price market to enable price risk mitigation and modern milk price models.

We need to arrest the milk pool decline and ensure Australian dairy remains a strong and reliable source of nutrition for domestic and international markets. We need to focus on changing what we can control and return Australian dairy back to a prosperous industry for those individuals, organisations and communities who rely on it for their livelihoods. It will take more than modern pricing models and price risk management, but a transparent Australian milk price market, with regulated pricing information would be an excellent start.

Keywords: Dairy, milk, price, models, risk management, agriculture, farmers, producers, processors, manufacturing, markets, derivatives, futures, options, Jack Green

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