Impact of Low Milk Prices on NSW Dairy Farmers: A Supply Analysis

This case study examines the factors contributing to the exit of dairy farmers from the New South Wales dairy industry due to persistently low milk prices. The analysis focuses on an ABC News article highlighting the dissatisfaction of farmers with processors, particularly Bega Cheese, over farm gate milk prices that remain below the cost of production. Key issues include rising input costs such as grain, electricity, and fuel, coupled with processor strategies that prioritize securing supply from other regions, such as Victoria, at the expense of local NSW farmers. The study also touches on the broader implications of these market dynamics, including the potential for long-term losses due to high production costs and the challenges faced by co-operatives like Norco in maintaining competitive pricing for their suppliers. Ultimately, the analysis underscores the economic pressures forcing farmers to leave the industry, impacting both producers and consumers.

SUPPLY IN PERFECTLY
COMPETITIVE MARKETS

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................3
REFERENCES................................................................................................................................6

MAIN BODY
The present article is based on the fact that why dairy farmers exiting the industry across
the whole NSW because of low prices of milk. With the analysis of the article it was evaluated
that farmers in New South Wales are actively making plans for exiting the dairy industry. The
major reason pertaining to the fact that the farmers received a confirmation from processor that
this week they are facing another year wherein they are producing the milk below the cost of
production. Also, the article highlighted the fact that after the positive reports and Bega Cheese
talking are stating that there is a strong market at current time and this was stated by dairy farm
Michael Shipton.
In addition to this, it was also evaluated that there are some farmers which are producing
the milk and they are exiting the market because of the different circumstances which occurred
in June 2018 (Dairy farmers exiting the industry across NSW due to low milk prices, 2021). With
the analysis it was found that the farm gate milk price was below the expectations for many
different suppliers and due to this the suppliers were not happy with the rates. Along with this,
Bega Cheese also announced that the opening milk price was $6.70 per kilogram of the milk
solids or was 50 cents per litre for the NSW producers which was a 3 cent increase as compared
to the last year.
Further it was evaluated that a there was a dissatisfaction with the dairy processer as they
were not happy with the prices and they stated that it is “very disappointing”. Along with prices,
Mr Shipton also stated that they would also have to reduce the number of cows and the staff
within the upcoming months. As a result of this the cost of milk producing will also increase
which will not be liked by the farmers and the consumers as well. in addition to this, for 20 cents
a kilogram also increased as compared to the last year and this is not enough for the farmers
within the valley to cover up all the cost of producing the milk.
The major reason pertaining to this fact is that the input cost is increasing such as grain
prices, electricity, fuel and all the other expenses. This is pertaining to the fact that when the at
the current moment, the production of milk is being taking place with New South Wales cost and
the Victorian prices. But in against of this, with Bega Cheese it was seen that they are having a
lot of Victorian suppliers and they are focusing on them only and not giving any importance to
their own home suppliers (Rural, 2021). Along with this, Executive chairman of Bega Cheese
has also stated that they have identified several challenges which the farmers are facing but then

also they are not in position to control the high input prices. Also, the chairman stated that they
are not in position to control the power prices and fodder cost. This is pertaining to the fact that
these cost are being defined by the market forces and they do not have any control over the
market prices. Hence, it is very essential for the farmers to know that there is not any control of
the committee.
Also, within the article it was stated that they are able to provide the price which is
reflective of the market and they are pleased that they are offering an increase in the price. But in
contrast to this, Mr Irvin rejected the suggestion of Bega Cheese relating to shift in focus to
secure the supply in highly competitive Victorian market at the cost of expense of farmer in area
of NSW. Thus, this is not at all good for the farmers of NSW as their benefit is not thought by
Bega Cheese and due to this reason the suggestion was rejected.
The major reason underlying this fact that in long run, high cost will not provide good
profit to the companies (Notter, 2021). This is pertaining to the fact that when the business in
planned for long run then it is necessary that prices are low because if the price will be low then
only the company will be in position to earn profits. In the long run, all the companies earn a
zero economic profit and if existing companies will face higher prices than before, then they will
increase the production of new output. This is pertaining to the fact that at this level the price
will be equal to marginal revenue and the marginal cost that is P = MR = MC.
P = MR = AR
MCCOST
AC
QUANTITY

Further it was also evaluated that the suppliers to Australia’s largest dairy co- operative
Norco will not be receiving a lift in the prices of milk this season. This is particularly because of
the reason that the at the average of 58 cents per litre, the farmers in northern South Wales and
the southern Queensland are some of the highest paid suppliers within the country. In this high
cost some of the producers have survived but maximum of the people has not survived this
increased cost of the production (Hu and Gill, 2021). Due to this, it can be stated that maximum
of the producers is not able to manage and sustain this cost and are suffering from loss. Hence, in
long run the high prices will result in loss for the company as the cost of production is high and
due to this they are not able to manage the competition. Thus, it is very important for the farmers
to leave the industry as they are not in position to manage the high price of input and as a result
of this cost of production is increasing. This is not being liked by the consumers as the increase
the price of the product and consumer will not be providing the high price for the milk.

REFERENCES
Books and journals
Hu, R. and Gill, N., 2021. The Family Farming Culture of Dairy Farmers: A Case‐Study of the
Illawarra Region, New South Wales. Sociologia Ruralis.
Notter, S., 2021. Lifting Farmer Engagement Within the Australian Dairy Industry.
Rural, S., 2021. Performance of Australia's dairy industry and the profitability of Australian
dairy farmers since deregulation in 2000. Parliament of Australia.
Online
Dairy farmers exiting the industry across NSW due to low milk prices. 2021. [Online]. Available
through: <https://www.abc.net.au/news/rural/2018-06-30/dairy-exodus-in-nsw/9924892>