The Australian independent milk services company, Milk2Market, has launched the Milk Exchange (MX) for the Australian dairy industry. Its aim is to create a more transparent digital supply chain for both milk buyers and milk suppliers.
The Milk Exchange is the first digital platform to buy and sell raw milk and offers a market environment where both sellers and buyers can participate in open trading.
With its unique digital platform, it provides the elements of a marketplace – such as price discovery, transparency, accessibility, and the allocation of risk in the commercial relationship between buyers and sellers.
The Australian dairy industry is only now catching up with other agricultural commodity sectors – such as beef, wool and grain – that already have markets where commodities are traded, on digital trading platforms.
At a time when many dairy farmers believe they are not realising the true value of the product they produce the Milk Exchange aims to create a more competitive marketplace and provide greater information on factors affecting the value of milk.
The platform sets a traded transparent price, giving farmers the chance to increase value for their milk and support the management of their risk.
“Barriers and challenges are currently being deeply and acutely felt by the Australian dairy industry. We believe that anything that creates a more equitable, transparent market is a critical building block to ensuring a more sustainable, future-fit industry,” says Richard Lange, General Manager Commercial Development, Milk2Market.
Many of these key issues were recently identified by the ACCC, including bargaining power imbalance and information asymmetry in farmer-processor relationships.
The mandatory industry code of conduct proposal, announced by the federal government in May 2019, aims to deliver measures such as ending restrictive exclusive contracts, and banning mid-season or retrospective price cuts.
However, the Mandatory Code legislation is yet to be finalised and will be subject to a round of consultation with industry. Many of these issues are ones that the Milk Exchange seeks to address.
In March 2019, Milk2Market published the Milk Price Calculator as a first step in providing simplified price comparisons through publishing easily comparable up-to-date pricing.
The Milk Exchange now goes one step further in creating a more integrated digital supply chain for dairy. Future iterations will embrace blockchain technology and smart contacts as part of the digital supply chain process.
To participate in the Milk Exchange, both buyers and sellers must complete a registration process via www.milkexchange.com.au in order to be eligible to trade on the platform.
Anyone seeking more information is encouraged to attend a free online webinar to learn how the platform works and to ask questions – register for the event at MilkExchangeWebinar.eventbrite.com
Milk2Market believes this is why buyers and sellers will use the Milk Exchange
The MilkExchange streamlines the value chain, saving transaction costs, and balancing supply and demand, with online dairy services. The benefits to all users include:
- Reduced transaction & search costs: efficiently matching buyers and sellers with milk volumes, components, production profiles, specifications and price, and in turn saving time and cost by streamlining the value chain
- Access to more buy and sell options: users can buy and sell contracts of milk volume across various time periods, as well as readily see where milk is available.
- Consistent quality standards: three milk quality standards are set in order to suit the varying needs for milk and dairy products.
- Online access to dairy services including logistics, milk testing, quality audits.
- Transparent pricing: the latest market information informs milk price offers and shows all recently sold contracts, so you can see what the market is paying for your milk – offering a simplified and transparent milk price.
An explanation of how the Milk Exchange will work
How to trade
Trading is anonymous and as simple as a click of a button to make an offer to the seller who advertises their milk on the Milk Exchange. Typically, the buyer makes an offer to the seller which is vetted and confirmed by Milk Exchange before contracts are exchanged.
How do dairy farmers get paid
Suppliers are paid into their nominated bank account on the 15th day of the month. Each month the Milk Exchange will create a recipient created tax invoice (RCTI) based on the monthly milk volume, milk components and quality – this payment is the same as typical traditional payments.
How much does it cost
There is no cost for suppliers to sell their milk through the milk exchange. Milk buyers pay the agreed milk payment and any milk services if required. To use the Milk Exchange, the buyer pays a transaction fee of $1000 and a declining MilkExchange management fee to cover the monthly operational costs of managing milk subject to the volume of milk in the contact.
Why would farmers use the Milk Exchange
Milk suppliers are now seeking more choice of whom they supply with more selling options and flexibility to adjust milk supply according to market factors. Times have changed from when farmers just supplied their milk cooperative and were locked to ride out the good and bad times. Milk Exchange gives control back to farmers in how they sell their milk and, importantly, provides transparency on the milk price they receive for their milk contract.
Who is behind the Milk Exchange
The Milk Exchange is a digital innovation by Milk2Market, Australia’s leading independent milk services company. Milk2Market has more than 60 years of collective experience in the Australian dairy industry. It provides milk services for dairy processors, food companies and retailers. In establishing the Milk Exchange, Milk2Market is seeking a better way to buy and sell milk that is more transparent, independent and credible.
Who sets the milk price
The seller sets the price for their milk offer. This price will be based on market factors such as the time of year, similar milk trades, buyer interest as well as the quality of the milk.
How is the price more transparent
The milk price is the amount payable for delivered milk based on the Fat and Protein components and quality. There is no complicated formulas or incentives. As a traded milk price, it is envisaged the price of the milk will match the market and vary based on demand and supply conditions for the available volume, region and quality. Whilst the buyer and seller remain anonymous, all milk sold on the Milk Exchange will have the final sale price published.
Why do buyers and sellers need to register
All buyers and sellers need to register to trade on the Milk Exchange. The Milk Exchange is a business to business trading platform. The registration sets up an account for both buyers and sellers with bank ABNs and bank accounts. The Registration also identifies capability of the dairy farmers to supply the contracted milk volume and ability of the buyer to pay for the milk contract.
What happens if a buyer or seller fails to honour the contract
The MilkExchange is subject to the same conditions of traditional milk contracting in that buyers and sellers enter a legal contractual agreement with clauses for obligations, warranties and dispute resolution.
Is the MilkExchange subject to the Mandatory Code
Australian Federal Government has published guidelines for a mandatory code of conduct between buyers and sellers in the dairy industry. The MilkExchange standard contract complies with these guidelines and will be monitored in the event the mandatory code is modified.
How quickly can a user start buying or selling on the MilkExchange
Once the registration is confirmed, buyers and sellers can start to use the Milk Exchange immediately.
How to do users advertise their milk
MilkExchange team will create advertisements for Suppliers (a ‘Want to Sell’ advertisement) and Buyers (a ‘Want to Buy’ advertisement). This is no charge to create an advertisement to list milk.
As a seller, what is the minimum volume I can sell
The minimum milk volume of supply is 400 litres per daily pick up. The minimum contracted period is one month.
As a buyer, what is the minimum volume I can buy
There is no minimum volume for buyers as this is subject to the amount that the seller is offering.
How do buyers confirm the milk contract
The buyer confirms the milk contract in the checkout of the MilkExchange by paying the transaction fee on credit card or a corporate PayPal account. The monthly management fee is based on the monthly delivery of milk over the life of the contract and is paid into the Milk Exchange nominated account.
When does the contract commence
Each milk contract has a start and end date. The advertising period completes one month before the contract is due to commence supply to the buyer.