By now, you have no doubt heard about our decision at hico to fundamentally change our pricing model.
As a Board of Directors we have been spending time over the past month listening to you, our shareholders, in a series of meetings, as well as speaking with many of you on a one to one basis either in person, or on the telephone.
We recognise that some shareholders remain unhappy with the path we have taken, and as a Board we have taken your concerns on board.
Consequently, we have taken the decision to make adjustments to some aspects of the pricing model which will hopefully address some of the issues that have been raised in recent weeks.
It is important to recognise, however, that we have not abandoned our stance to reward those shareholders who choose to utilise our major products and services. We strongly believe that this is the correct path forwards for hico Australia, and more importantly, provides the appropriate model for a farmer owned co-operative. It is a model that ensures that no one group of shareholders contributes inequitably to the overhead costs of the business.
Below I have attempted to answer some of the questions that have been posed to us over the past few weeks, as well as outlining the modifications we have made to the pricing model after taking on board your feedback.
Should you have any queries about our pricing model, or unsure about any aspects of it, I would encourage you to contact myself, any of our Directors or staff.
What are the fees?
hico's herd testing fees are broken into 3 components:
A fee for each cow tested:
Every time your herd is tested, you will be charged 31c for every cow which is tested. This charge is to cover the costs that relate to weighing and testing the samples through our laboratory.
A visit fee each time your herd is tested:
Every time your herd is tested, you will be charged $55.00. This visit charge is to cover the costs that relate to delivery of testing equipment.
Annual herd service fee:
The existing method of charging a fee for testing each cow which calves has been replaced by an annual herd service fee. This fee is designed to recover the fixed costs associated with providing a herd testing service. It has been necessary to move away from a fresh cow fee because many farms now adopt a split calving system and carry over a significant percentage of cows which fail to calve every 12 months.
The new Annual herd fee is not a fresh cow fee and will be based on the number of cows you plan to test during the year and the number of tests you plan to do. You will provide this information when you sign up for herd testing each year.
A further discount of 30c per cow will be available for herds that supply all their data electronically through MISTRO Farm.
Customers who purchase semen through hico will be rewarded with a discounted annual herd service fee. This discounted herd fee will operate on a sliding scale. The greater the amount of semen you purchase from hico the greater your reward.
The annual herd fee is:
No. of Tests Normal rate REWARD RATE
4 - 6 Tests $12.70 per cow per year $6.70 per cow per year
7 - 11 Tests $14.90 per cow per year $8.90 per cow per year
12 Tests $14.60 per cow per year $8.60 per cow per year
We have created a calculator to help you calculate the estimated cost of your herd test. Click here to launch the calculator.
Why have you changed the fees?
On December 18th 2008 Murray Goulburn announced a very significant drop in milk price for its suppliers. This announcement was closely followed by most other major milk processors in Victoria. Given that hico’s income is derived from the dairy industry, your Board and management concluded that without change, hico could be looking at a substantial loss of around $400,000 in the year ahead, if world dairy markets do not improve . The only way to improve that situation without dramatic price rises is to encourage farmers to purchase as many services as possible from hico, but especially semen and herd testing.
Why is there now a $6 reward for farmers who purchase at least one dose of semen per cow herd tested through hico?
If all our farmers stopped buying semen from us then ALL the overheads of hico would have to be paid for by herd testing charges. This would result in an increase in herd testing costs of $6 per cow.
What has changed with the freeze branding & de-horning charges?
The two tiered pricing system for calf dehorning and freeze branding has been simplified and pricing will not differentiate between those who have purchased 100 doses of semen and those who have not. All customers will be charged the same rate of $65 per hour on farm and a visit fee of $55.
What are the business overheads of hico?
Whether a farmer uses one or five of our services, just like any other business, we still have to pay the same for accounting, auditing, insurance, rates and ensuring proper governance. We also have to maintain offices and buildings and maintain or replace laboratory machines, herd test meters, and trucks regularly. We must provide a safe work place and comply with all OH&S regulations. The list goes on. That is why it is important to maximize the use of our services – to keep the overhead costs per dollar of income as low as possible, which in turn benefits all of you.
I am using a private provider of semen – Why should I buy my semen from you?
We are asking you to consider buying some of your herd’s semen requirements through hico. We are not asking you to put all your semen purchases through hico, but the reward you receive will be in line with the amount of semen you buy. By buying semen at hico, you will spread our business overhead costs across increased sales and make hico stronger. We will then be in a stronger position to survive this downturn without increasing prices for herd testing dramatically.
Now you want to dictate to me that I must buy semen from you.
We are not trying to dictate to you, but we are giving you an important choice. You can buy most of our services from a number of providers but if you choose not to support hico, then you make it much harder for your co-op to have a sustainable future. You, as the owners of hico, have to decide whether hico as a business is important to your farming enterprise in the longer term. If it is, then we are asking you to consider purchasing some of your herd’s semen requirements through us.
I wouldn’t know the difference if hico went broke. Nothing would happen!
Who is going to develop new technologies to use on your farms (e.g.: MISTRO and EMMs)? Who is going to invest the capital necessary to provide you with herd testing long term? Who is going to test your milk samples? Who is going to keep the prices of herd testing down?
Without hico, herd testing would be more expensive as there would be less competition. It is unlikely that new developments would be brought to the herd testing industry. Less farmers herd testing would be the result. With herd testing only being used on 47% of cows currently, further losses would reduce the data available to industry for genetic improvement and research and further erode the long term competitiveness of the industry.
If you have any additional questions or concerns we welcome you to contact any of the hico Australia staff who will be more than happy to help you.
Robert White
Chairman
hico Australia