Covid-19 continues to impact how we live and operate as individuals, communities and businesses. This month we look at the impact it is having on farm input pricing and the supply chain from the perspective of a rural produce store and a farmer.
Troy Higgins, manager at Gloucester Rural Supplies, shares his perspective on how he is managing the challenges of securing supply of products in the year ahead and gives us some insight into current and future pricing and availability of products.
Chris Maslin is a third-generation dairy farmer who manages a herd of 700 cows in a family dairy business near Gloucester and he explains some of the things he has done to plan ahead in his business given supply issue challenges.
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The Business of Dairy
Episode #9 Transcript – “Covid-19 Impacts on Dairy Supply Chains and Pricing”
Sheena Carter: Welcome to this month's The Business of Dairy podcast. I'm Sheena Carter, development officer with the New South Wales Department of Primary Industries dairy team. COVID 19 continues to impact how we live and operate as individuals, communities and businesses. This month, we look at the impact it is having on farm input pricing and the supply chain from the perspective of a rural produce store and a farmer, with my guests Troy Higgins and Chris Maslin. Troy is the manager at Gloucester Rural Supplies in the Mid North Coast region of New South Wales. He shares his perspective on how he is managing the challenges of securing supply of products for the year ahead and gives us some insight into current and future pricing and availability of products. Chris is a third generation dairy farmer who manages a herd of 700 cows in a family business, also near Gloucester, and he explains some of the things he has done to plan ahead in his business given supply issue challenges.
Welcome Troy. Thank you for joining me on the podcast today. It's great to have you, and you've obviously been around in the retail side of agriculture for a number of years now and seen many challenges – that sort of being, you know, droughts and floods. But we've got a unique one now with COVID in some of the supply chain issues we're seeing in agriculture, both from an availability of product but also pricing of product. Can you just expand on how that is affecting you as a retailer and how you are managing it?
Troy Higgins: Thanks Sheena. Certainly the last 12 months to two years has been challenging, to say the least. Yeah, I've been in this industry for 30 years, so this is something that's obviously new to everyone and certainly has changed the whole perspective of rural merchandise. We've certainly had to change what we do and what we've been doing over the last few years. So moving on from that, I mean, obviously, COVID 19 has been the real problem globally and what that's seen as far as supply and pricing to rural merchandise is on a supply issue with factories in China subsequently closing or having very skeleton staff has led to supply issues because they just simply… the supply and demand, it’s just not keeping up.
So, certainly difficult from a managing perspective on where you should be with stock. So we're currently, sort of, forecasting and even committing to stock six to 12 months out, hoping and praying that, you know, pricing doesn't fluctuate too much. It doesn't look like it from what I can gather. So committing six months out on products like glyphosate is very challenging because, I mean, we're so governed by the weather and it's hard. It's difficult. It’s been very difficult.
Sheena Carter: Yep. So I guess fair to say that it's predominantly those products that we're not necessarily producing here in Australia, it's those imported products that the real challenge is with, so things like seed. Seed is predominantly domestically sourced?
Troy Higgins: Yep, so seed at this stage seems to be seems to be fine. Pricing on seed is, I mean, it's increased minisculey, but no issues with seed. Things like steel – you spoke about locally produced stuff, i.e. Waratah – they actually have the cheapest steel posts on the market and that hasn't… well I’ve never seen that, it’s always been imported. Imported steel has always been a lot cheaper. But at the moment, locally made Australian products are cheaper than imported on steel. Things like chemicals, with the actives being so sought after, like glyphosate has doubled, well it’s more than doubled. And things like shipping. Shipping is another huge problem because we've seen containers, you know, it's three and four fold dearer than what it was, you know, 18 months ago. So even though the active is still the same product, you times that by four – it makes it dear. So where’s it heading? Don't know.
Sheena Carter: Yeah. And how are you seeing that translate in terms of what farmers are buying? I guess, you know, it's particularly challenging for dairy businesses because you need these inputs to generate a, you know, ultimately your product at the end of the day. Are you seeing people cut back or it's a matter of, I just have to wear the price at the moment and perhaps a lower margin in terms of profit at the end of the year, but I need the products to produce milk?
Troy Higgins: And I think that's probably… their margins have certainly come back. They still need to run their business. They still need to survive. So this their inputs… their inputs have come back. They’re probably been more strategic with them. So there's things like more soil testing, more animal health testing to try and get true data to their farm so they're actually utilising what they should be using. So, things like that have made them more aware of being more on the front foot rather than the back foot. So certainly the fertiliser is probably getting a bit like urea at the moment, it's sort of $1,700 a tonne. It's probably getting a bit exy and too far out. What they are doing, and they’re fortunate to do it – talking to a couple of dairy farmers, is there's that much feed that they're actually conserving a lot more fodder for the wintertime than what they normally would because they think that the price of urea is just too hexy to try and keep growing green grass. So they're going to utilise what they've already got now. So that's one way they're looking at it and getting around it, cutting back on DAPs and starter fertilisers, like, their rates have probably gone back to half. But they've got a bank of phosphorous already in their soils anyway. So they're not going to be behind that much when things turn around.
Sheena Carter: Right. And I guess, you know, we're in January at the moment, but we're coming up to sort of preparing for autumn sowing and those kind of things. So hopefully people are doing their soil tests and, yeah, doing their budgets on their fertiliser requirements based on those.
Troy Higgins: Yep, they are. And probably to a degree too, farmers have realised the shortages and especially the shortages on products. So they're actually nearly forecasting themselves to us, which is a pleasure. Rather than waking up today and coming in today and saying this is what I need, they're actually giving us a bit of lead time on what they're thinking. I mean, it's a crystal ball thing, but they're saying, you know, this year we're going to think about doing, you know, 100 hectares of this product and this is what we want to do in March. So it is making it a little bit easier, well, easier in what we're in, but, so it is good that they're actually forecasting out.
Sheena Carter: Yeah, and I guess we're seeing that across… this is not just in dairy farming, it's not just in agriculture, it's across the communities. So it's really front of mind for people that you know, just about anything you're trying to buy at the moment is quite difficult to access. So I guess hopefully that's triggering that forward planning that people need to do in normal times, but it's much more useful now when there are those challenges.
Troy Higgins: Yeah, very much so.
Sheena Carter: What about, you know, we'll be coming into, particularly, those people that have forage crops that they'll be conserving into silage. What about silage making products? What's that looking like in terms of availability and cost?
Troy Higgins: Yeah again, the cost is probably… it would have doubled on twines and wraps and silage covers, et cetera. Availability comes in spurts, so there'll be an influx of it and then just simply because of the shipping issues that they're having, our suppliers are finding it really hard to get ships coming in repeatedly. So they’ll get an influx and then that’ll all go and then there will be nothing. Then another influx… so it's just across the board. It's just, it's hard to get it, get it right.
Sheena Carter: Yeah, yep. In terms of, you know, some of those inputs like silage wrap or fertiliser seed, I guess we're sort of seeing now that farmers are starting to plan, did you have farmers in the earlier stages starting to request stock to have on farm earlier? Or is it really now that the pinch has started to bite?
Troy Higgins: No, I'd say it's probably been the last… I would only say the last 12 months that they've actually… So a lot of farmers have now got their own inventory, if you like. So they are carrying a lot more stock than what they normally would, simply because of this. We're doing the same. We're carrying a lot more inventory because we just don't know what's around the corner. So, you know, we're a lot more higher on our stock than what we normally would be. And farmers are certainly doing the same. They'll buy, you know, 10 drums of glyphosate instead of four – things like that.
Sheena Carter: Which also has supply and demand and pricing implications, doesn't it? It's all intertwined and a bit complex. So, I guess I was going to ask you to do some crystal ball gazing, but it is really a tricky situation and I think probably the message to farmers is your suppliers are trying to manage this situation as best they can, so the more planning and budgeting that they can do and have those conversations with you ahead of time, it makes the whole supply chain and process a bit easier.
Troy Higgins: It does make it easier. I wouldn't say that it's guaranteed, but it certainly makes it a lot easier. As far as crystal balling, it does look like the price of fertiliser will start to come back in the next couple of months. The fertiliser companies did state that, you know, at the end of last year, they did say that quarter two of 2022 would start to see an influx of more product, which means the price should come back down. The steel and chemical looks like being very, very stable as far as pricing goes until the end of the financial year – so the end of quarter two. And supply is still going to be very sporadic on those two fronts. So the only thing I can suggest is farmers get ahead of the times and just secure product because it's not, it's just not going to be there.
Sheena Carter: Great. Well, thank you very much for that, Troy. It's, you know, we always talk and engage with farmers directly, but it's very good to get your point of view from a retailer's perspective and trying to meet farmer demand and supply in your business for the period ahead. Hopefully not too far.
Troy Higgins: Exactly. Hopefully. No problems at all, Sheena.
Sheena Carter: All right. Thanks, Troy.
Welcome, Chris, to the podcast and thank you for joining us today, it's great to have you on board.
Chris Maslin: Thank you, Sheena.
Sheena Carter: Chris, I’ve introduced you earlier, but you’re a third generation dairy farmer, so you've either lived through quite a few challenges yourself in terms of droughts and floods or heard about them as well, and now we've got a real curveball in terms of COVID and how that's impacting farming operations with higher prices and availability of product. Can you just quickly explain your business to us in terms of herd size and annual operations, particularly around your pasture base and cropping?
Chris Maslin: Yeah, thanks Sheena. Look, our operation is currently around 700 cows with our intention to grow that number. We do a lot of long fallow using winter wheat, early autumn sowing and also ryegrass in rougher country, but all long fallow. Currently, we'd have 300 odd hectares in fallow ready to go and it's set up basically because we're focused on autumn calving, which will start shortly. So ensuring that we can have fodder ahead of them is our intention.
Sheena Carter: Yep, and so you grow a lot of maize silage predominantly?
Chris Maslin: Yeah, we grow maize silage and also soybean. We've been doing that now, using a combination, for three years, where we two thirds build the bunker with corn silage and then cap it with soybean. And it's been a success every year if we can pull it off. Last year was a bit of a stress because of the floods but this year, the crop is actually looking well. We've dealt with armyworm and got through that phase and the crop is actually looking exceptional. We've had great weather to go with it.
Sheena Carter: Right, and it is good to see finally, after several years of drought that we have got some good, good seasons. I guess, you know, things that are playing in our favour are the season. We've got relatively strong milk prices still, and we've also got high cull cow prices, so thankfully that side of the scales is positive. It's really these input availability and costs that's being the challenge in the farming game.
Chris Maslin: I think that's so true, like, the problem we're facing is… supply is crucial. Like, our stock levels in inventory have probably grown by at least a quarter, and that's been driven basically by supply and pricing. You know, like I bought DAP back for the autumn sowing about three months ago, you know, paid well under a thousand dollars a tonne and now I think current retail pricing is at eighteen hundred. And same with urea. Nearly all our fertiliser for the autumn sowing is already on hand, only because research I’d done, the pricing was going to continue to climb, so we've gone ahead and committed both seed and fertiliser and even chemical. Like, a simple thing like Roundup, I’d have three or four shuttles at Roundup just to have, because I know I'm going to need it. And that's causing somewhat of some pressure from, you know, it's coming out of cash flow when I'd generally be postponing that until the new year and it's already on hand. But I think that doing that, you know, a simple thing like the DAP acquisition, you know, the significant saving I've had there is because we've got to be really cautious ourselves as maintaining reasonable margin, even though you commented regarding the relatively high milk price and cull cow price. But you know, our inputs have got to be somewhat controlled as much as we possibly can and supply.
Sheena Carter: Yes, well and truly, and I think obviously you've done a lot of forward planning to secure, and I think the challenge for dairy farmers is very much that it's not a business you can turn on and off. If you don't have the inputs to produce your fodder or your pasture, you're not going to have anything to drive your milk production. So yes, you will, oh well, the industry will probably see reduced margins across the board because of these, but they still need to maintain production.
Chris Maslin: Yeah. Look, we've got our silage and hay stocks probably at the stage that, you know, we've been growing them since the drought focused on conserved fodder in bunker silage and hay and square bale silage, you know, our stock levels are probably the highest they've been in a decade and we've got another crop coming now. It's the security of, like you commented, we do run a relatively large dryland farm and having those silage reserves are basically just security going forward.
Sheena Carter: Yes. So looking ahead into autumn, what sort of things would you normally do that perhaps you're doing a little bit differently this time around?
Chris Maslin: Very cautious of using soil tests and applying what we require and only doing that. That's what we're really focused on. I think it's a year where we’ve really got to be very cautious and more importantly, it's just, well, that's how I’m operating the business as much as I can. It's just doing that by control.
Sheena Carter: Have you considered using alternative fertiliser supplies such as, you know, effluent manure on farm, chicken litter?
Chris Maslin: Our farm’s registered for solids also. So, biosolids, chicken litter, but again, chicken litter’s relative price now is actually because they've realised that they can… they’ve wedged it up a little bit – and supply – if you've not been in that sector, access to chicken litter is probably a little bit difficult, so I’m weighing up all options.
Sheena Carter: No, that's good. Now, that's sort of the supply in terms of inputs and maintaining that production and acknowledging we're going to potentially see reduced margins. Can we… are you just happy to talk a bit about how COVID is actually impacting you in terms of the farm management? Obviously, with, you know, 700 cows growing to 800, you've got quite a large workforce. How’s COVID been impacting you?
Chris Maslin: Look, I suppose on farm, we've been able to manage it. Unfortunately, we've had two cases on farm already – self-isolated and we've got through that. But I think it's a rolling ball that we've all got to deal with. We've been quite fortunate so far, but at the end of the day, I can see myself getting it even though I'm double vaxed, but I just think we've got to roll with the punches and do our best and keep protocol in place, like, that's what we've been doing, it's been successful so far. The two incidents were over Christmas when other, and that's not criticism, other family members came from other parts where it occurred, and that's just the way it is. It's not a criticism, it's just we've been fortunate so far and we've just got to continue to roll with it and as long as we keep the practices in place, I'm pretty sure that we'll be able to get through this.
Sheena Carter: Yep. And I will put a link in our show notes to Dairy Australia's COVID Safe Plan template for those that haven't set that up yet. I think as you mentioned, you know, people moving about, we're not going to escape it, it's going to impact us all very soon. What are what are some of the ways that you've managed, or how are you managing with your protocols on farm to try and mitigate the risk?
Chris Maslin: Just the break up of shifts and having separate shifts running and trying to keep them separate as much as possible from a social distancing. Glen 20 or disinfectant in vehicles, that's one thing we've been using, but that's probably the main one is the two shifts trying to keep them separated. There is potential risk. I know that, but we're just doing our best.
Sheena Carter: Yes, and I think that's the way it is. We've been living through this now for nearly two years, so people are, you know, have certainly been thinking about how they can manage it and getting processes in place. And I guess your other advantage is you do have a rotary dairy, so you've got that ability to separate.
Chris Maslin: That's an advantage, no doubt, because you've definitely got that social distancing occurring immediately, but there’s only so much you can do.
Sheena Carter: Yes, minimise the risk and plan as best you can. Look, thanks Chris, it's been a good chat in some very challenging times – summer of 2022 – let's hope that we see things settle down in the short term, but it's probably going to be more the medium to long term and that we continue to see the good season that we have with all that green grass out in the paddocks and things settle down.
Chris Maslin: Thank you, Sheena. Look, it'll be a challenge in 2022 but look, I'm ready for it and let's get on with it.
Sheena Carter: This month's podcast highlights the importance of planning and budgeting for the season ahead. In order to secure products you will need to run your dairy business. Communication ahead of time with your supplier is key to ensuring they are aware of your requirements due to the challenges being faced in accessing products, particularly chemicals and fertilisers.
Thank you for listening to this month's The Business of Dairy podcast produced by the New South Wales Department of Primary Industries’ Dairy Business Advisory Unit. This series is also brought to you with funding and support from the Hunter Local Land Services. This month’s show notes contain a transcript of the podcast and a link to the Dairy Australia Resources page, which contains templates and posters related to COVID 19 for dairy farmers, including COVID Safe Plan templates, which you should maintain and keep up to date in order to prepare, manage and minimise the risk of COVID 19 to your business. For current COVID 19 recommendations and health alerts, please visit the state government website relevant to your business.
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