We need to change from a reactive production driven industry to a proactive market driven industry with the ability to manage price risk. If we look at the way the current payment structures work then it is an annual auction where the farmers don't really know what price they are being paid and the milk processors don't know how much milk they are buying, with the end result that the milk producer manages the price risk for the whole supply chain. In a capital and labour intensive industry, surely this needs to change in order to attract and retain new entrants.
For a proactive market driven industry then there must be an ability for a processor to respond to a market opportunity on a daily basis and the milk producer needs to know what price they are going to receive for their milk, to know if it's profitable or not.
To move the industry up the value, chain milk processors need to develop new products that take time to build to commercial scale which needs a stable milk price.
To achieve this then the industry needs to have daily regional long, medium & spot prices with fixed volumes and the ability to sell multiple buyers in order to manage price risks for both processor and producer to enable flexibility for efficiency.
D.A. would run a weekly Dutch milk auction as well as a live trade room(like Waterpool) for transparency and milk producers would also have daily milk prices from buyers on their phone apps. This would mean there is daily competition for milk at farm gate.
In summary, this system would have buyers managing their own risks by the amount of milk and prices they have contracted for both the supply and sales side, it would also allow them to be more proactive in that they will respond to the timing of the supply or sales uptake rather than the loss of supply or sale as Al and Algorithms become more refined and used.
For the producer it would mean they can manage their price risk by locking in a profit and manage the price volatility from old season to new season by contracting different starting dates and contract lengths and also managing some production risks by being able to buy milk from another source.
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