THE simple business concept of supply and demand no longer seems so simple in Australian agriculture.
Numerous agriculture sectors are witnessing ongoing tension between farmers and processors.
There are currently disputes between grower/producers and the relevant wholesalers/processors in the sugar, horticulture, beef, dairy and sheep industries.
While individual in their specific concerns, one of the themes to emerge across the sectors is complaints over a lack of pricing transparency.
Recent figures from the Australian Competition and Consumer Commission (ACCC) show agriculture sector complaints totalled 185 in the last six months of 2016 – up from 137 in the year’s first half.
ACCC agricultural commissioner, Mick Keogh, said it was hard to know if there was an increase in anti-competitive behaviour or if the rise in complaints was a response to the ACCC's more visible work.
“I suspect it’s a response to greater awareness about the ACCC rather than an outbreak of bad behaviour," Mr Keogh said.
The ACCC's 2016/2017 agriculture dealings included:
- a number of grain marketer payment defaults on contracts;
- notable delayed horticulture payment issues;
- an inquiry into the dairy industry after processors Murray Goulburn and Fonterra “clawed back” farmgate milk payments made early in the season;
- an inquiry into the competitiveness of cattle marketing and price transparency.
Results from a FarmOnline survey asking: "Do you think more needs to be done to resolve issues between farmers and their processors?", show 93 per cent of respondents indicating yes.
Senior lecturer in agribusiness at the University of Queensland, Dr Jason West, says robust price negotiations are nothing out of the ordinary and there is always tension between growers and processors in terms of price and quality penalties.
"But I have noticed growing tension in the schedule of process payments made to growers over the past two to three years," Dr West said.
"The schedule is increasingly in the processors' favour and longer durations are becoming normal, especially to the smaller growers, over 90-120 days in some cases.
"If one local processor with large market share sets this precedent then the rest follow and extend their terms, not by as much but the payment schedule doesn't tend to get shorter."
Dr West said it was unclear why this was but the trend was affecting cash budgets all through the value chain.
"It may be a combination of processors tightening their cash budget planning, more generous terms offered to foreign importers to secure off-take and an increased effort to align the timing of cash flows with export contracts," he said.
"One shift in flows heightens tensions throughout, and a single dominant processor experiencing cash flow issues makes the upstream and downstream components nervous."
While unable to comment on specific commercial relationships, Agribusiness Australia chief executive officer, Tim Burrow, said agribusinesses throughout the supply chain in Australia operate in an extraordinarily competitive marketplace both domestically and internationally.
"Relationships all the way along the chain, for instance between producer and processor, processor and retailer and in some cases producer and retailer, differ from person to person, company to company, and sector to sector," he said.
"The divergence of experiences and opinions across and within industry sectors reflects the diversity of the industry itself.
I have noticed growing tension in the schedule of process payments made to growers over the past two to three years.
- Dr Tim West, UQ
"Although all sectors wish to see greater transparency throughout chains, and for relationships overall to be improved, there are few suggestions for change that are universally supported."
Longstanding tensions between processors and producers in the beef supply chain are reaching boiling point as competition investigations and senate inquiries shine a spotlight on seemingly ingrained business practices.
Deep-rooted farmer grievances, ranging from unfair cattle buying practices at saleyards to payment for offal, have been aired, with one of the big producer calls being for mandatory price reporting through the supply chain as a means of creating greater transparency.
Much of the inbuilt distrust stems from the enormous amount of rationalisation and consolidation that has occurred across the processing industry in recent decades.
Perhaps for the first time ever, many of the big challenges faced by the processing sector are finally starting to be expressed publicly - issues such as stifling regulation, excessive red tape, the tight nature of profit margins in the game and technical barriers to trade.
Codes of conduct have been flagged but still, there are many, many areas where solutions are not likely to be forthcoming in the near future, despite extensive efforts on the part of all involved.
The dairy industry, meanwhile, is hanging a lot of hope on a fair trading investigation currently underway.
Since the industry was deregulated in the 2000, farmers say contract negotiations have been heavily weighted in the favour of the processor to the point where many, many farm businesses have been rendered unsustainable.
Certainly the contraction in the industry backs that claim.
The advent of $1-a-litre supermarket milk, widely accepted by the majority of players in the milk supply chain to be unstainable for the farmer, has brought the producer/factory battle to a very fragile point.
Things came to a head last year when unfathomable price clawbacks were levelled on southern producers, and the fast-dropping national milk production levels are proving Australia’s dairy industry is genuinely in crisis.
Supply chain angst within the horticulture industry is set to receive further attention with the federal government recently releasing its response to the independent review of the Horticulture Code of Conduct.
While there has been industry-wide agreement over the need for changes to the code, sticking points include the call for a real-time pricing information flow, and clarification over wholesalers operating as both merchants and agents.
The stand-off between sugar cane growers and major sugar miller, Wilmar, continues with threats of government intervention and grower strikes being bandied about.
For many years sugar growers enjoyed the security of the Queensland Sugar Limited's (QSL) single desk selling arrangement however that changed in 2006 with the deregulation of the industry.
According to Mr Keogh, many of the agriculture supply chain dramas stem from two-plus decades of changes away from regulated commodity marketing systems which left farmers more exposed to market behaviour.
