Falling Dairy Prices: agCap’s Sustainable Approach

The dairy industry was rocked by the announcement by Australia’s two largest processors to significantly reduce FY2016 milk prices to unsustainable levels. When combined with seasonally dry conditions in an El Niño year, this has significantly affected the financial viability of many Australian dairy farmers.

Cradle Coast View

Cradle Coast – Cows headed to Ashburton Dairy

Faced with the prospect of losing money for every litre of milk produced for the rest of the season, many dairy farmers have rationally stopped milking and reduced the amount of employed labour. These cost saving measures may enable many dairy farmers to survive this difficult time, it will however place pressure on farm staff and their families who may have lost their jobs or have had their hours cut back.

As a sustainable investor in Australian agriculture, agCap has approached these difficult times a little differently.

“We were as surprised as the next person on the severity of the drop in milk prices.” says Wolfie Wagner, Southern Livestock Manager of agCap. “However, we simply got on with it and assessed the impact to our business and investigated the levers that we could pull. In the end rather than dry off our cows, we decided to continue to milk our cows for the rest of the season.”

Wolfie Wagner continues, “While we could have saved some money by drying of our cows earlier than normal, the loss of production means our sharefarmers and their staff would have suffered significantly. As a business were attracting good farm staff can sometimes be difficult, that would not have been sustainable so it was an easy decision.”

Chief Executive Officer, Martin Newnham explains. “Our approach to agriculture is that we operate long-term assets meaning we need to take a long-term approach to our decision making, to ensure the long-term wellbeing of our farms, staff and investors.”

“The unique position we have is the diversified nature of the Sustainable Agriculture Fund. We have operations in grain, cotton, beef as well as dairy. This smooths out some of the cyclical elements of our industry and this affords us the opportunity to manage through subdued prices and difficult seasons rather than acting reactively to short-term events.”