Chapter 6: Supply Chain Case Studies
6.8 Conventional dairy products case study – Incremental changes
Peter and Elizabeth and their children are dairy farmers in the South West. Peter is also the chair of the local landcare group and has a position on the state dairy board. Elizabeth also works off- farm. The family have a herd of 470 milking cows in two dairies with an equal number in calf. Peter has taken considerable effort in his breeding program, achieving a breeding value in the top five per cent in Australia, giving this stud the second breeding value in Western Australia. They turn over approximately 25% of the cows every year. As well as great attention to breeding, the science of nutrition and feeding is critical in their operation.
The farm area is 240 hectares with an additional 70 hectares of leased area. Peter takes considerable effort to manage his farm sustainably. However, as there is no monitoring of water quality in the stream entering and leaving the farm, he lacks confidence about the impact of the dairy operations on water quality. They use minimal sprays and limit medication, such as antibiotics for cows. Whilst they meet the best practice requirements for their two pond effluent system, Peter suggested that this could be improved. He commented that along with many other dairy effluent ponds in the area, it can overflow in the winter. Peter has taken steps to resolve this through implementing a system that uses effluent as irrigation and is spearheading the way with this in the local area.
Peter and Elizabeth believe that the manufactured product is high quality due to the high quality of the milk. They supply to one of the two largest milk manufacturers in Western Australia, a multinational company that has recently purchased the previous Western Australian based dairy manufacturer.
The dairy foods manufacturer representative suggested that differentiation of products based on environmental management on farm or for organics is not possible at this time. The process would require at least 30,000 to 40,000 litres per day, or supply equivalent from around 10 dairy farms. These would also need to be in close proximity to each other to enable efficiency of transport. There is also the prohibitive cost of extra storage and loss of approximately 2000 litres at the beginning and end of each product line. He suggested that a very high premium would be required if dealing with such small numbers. The manufacturer did not support a need for additional environmental criteria or labelling, suggesting that existing quality assurance standards and minimum standards for effluent treatment are adequate to manage impacts of concern.
He also suggested that if anything, farmers need increased financial and management accounting support. The main corporate social responsibility mandate of the dairy manufacturing company is based on supporting the community and being a good corporate citizen to communities. This includes sponsoring children’s health and family initiatives. They believe this is more beneficial to their marketing campaigns than promoting environmental values. Their environmental sustainabllty efforts include attempting to travel the minimum distance per litre of milk and managing waste products and effluent according to regulations. Parts of their factory operations are also ISO 14001 certified.
Towards the end of the study timeframe, the manufacturer company in this supply chain joined the international Sustainable Agriculture Initiative. This includes a commitment to source from sustainably managed farms. The dairy manufacturer states on their website that they are involved in a number of environmental initiatives, including the Dairy Industry Strategy for Sustainable Environmental Management, Pastoral Greenhouse Gas Research Consortium, the Dairying and Clean Streams Accord, and the International Standard on Environmental Management Systems. They also promote their involvement in community capacity building programs in New Zealand but this was not evident in the South West. They do, however, provide a service of Best Management Practice advice to their growers in the South West which includes information on environmental management. This program is an important source of information to growers on company policies and a link to best practice information. Another important source of information and support on environmental best practice on-farm comes from programs such as Dairying for Tomorrow, which employs a local coordinator who has contact with most of the dairy farmers in the region.
Milk products are retailed extensively throughout large and small retailers in Western Australia. Around 25% of the milk also goes to the eastern states and 15% to international markets, either as whole milk or milk powder. Comment on environmental values from the production manager of one of Australia’s two major retail chains were recorded in 2005. He suggested there is significant confusion about this issue and a lack of clarity about the sort of system that might be appropriate. He suggested that a system that integrated QA management principles and environment would be of interest to the retailer.
Given the lack of interest by the manufacturer in differentiation of milk from environmental best practice farms at this stage and lack of incentive for the retailer to promote environmentally friendly products, it is unlikely that environmental values are transferred through this supply chain, despite significant efforts at farm scale. Figure 15 shows the potential transfer of values.
The environmental values developed on farm are not relevant to the manufacturer or retailer marketing or company policies. Hence these values are not communicated to the consumer, despite evidence that they are interested in this value (as demonstrated in the consumer research discussed later in the report).
Figure 15: Transfer of environmental and other sustainability values in conventional milk case study
Product statistics
Retail price = 100% conventional
Product miles = low to high : minimum 200 km (local) to 4300 km (interstate)