His comments came as Murray Goulburn surprised investors and its farmers by announcing a deeply discounted farmgate milk price for farmers for the start of the 2017-18 financial year, as Mr Mervis warned that the performance of the processor behind the Devondale brand remained “below expectations”.
Mr Mervis, the former Carlton & United executive who has been in the role for just six months, outlined a further deep and comprehensive review of the company’s corporate and financial structure, with a particular focus on the complex profit-sharing mechanism between unit trust investors, shareholders and milk suppliers.
News of Murray Goulburn’s continuing woes saw the value of shares in its listed unit trust crash to their lowest point since the hybrid co-operative first listed on the Australian Securities Exchange in mid-2015 at $2.20 a unit. Yesterday they closed down 14.5 per cent at 73.5c.
Australia’s largest milk processor will pay only $4.70 for every kilogram of milk solids supplied from July, equivalent to 36.2c a litre of milk, and well below the cost of production for most family farms. The low price leaves Murray Goulburn — previously regarded as the “benchmark” or price-setter for all dairy firms — paying its 2000 farmers less for their milk than rival processors such as Fonterra, Bega Cheese and Burra Foods, for another year.
Farmers had hoped recent rises in global dairy commodity auctions would signal the end of the disastrous past year of the “dairy crisis” and translate into an improved Murray Goulburn milk price from July of between $5 and $5.50 a kilogram. But Murray Goulburn’s new season rock-bottom “opening” price is worse than the average $4.95 (38c a litre) its farmers are currently being paid — a price that has already seen MG’s share of the national annual milk pool shrink by a shock 30 per cent, from 3.6 billion litres a year ago to 2.5 billion litres today.
There are now fears MG will lose more of its critical milk supply as once-loyal farmers continue to desert the troubled company in favour of better-paying rivals, further eroding Murray Goulburn’s earnings.
Murray Goulburn supplier and Cobram dairy farmer Paul Mundy described the $4.70-a-kilogram opening price as demoralising.
Mr Mundy, who has been a vocal critic of MG’s management decisions and corporate governance that caused the 2016 price crisis, said the struggle to survive financially would now continue for at least another year.
“We’d looked at recent world dairy prices that are up 30-40 per cent and thought the worst case scenario was that Murray Goulburn would open at $5 a kilo, but that they really needed $5.50 a kilo to stay competitive with other processors,” said Mr Mundy, who is locked in under contracts to supply MG with milk for another three years from his 220 cows.
“But to see a price of $4.70 a kilogram is gut-wrenching; there is no light at the end of the tunnel here for suppliers and none of us are left with any costs to prune further out of our farms; you won’t find a dairy farmer surviving today who is not as mean as possible.”
Mr Mervis said he would like to have been able to offer farmers a higher price for their milk from July. But the company’s total debt load — sitting at $677 million at the end of December — made it impossible to do.
Mr Mervis said that since early May — when Murray Goulburn scrapped attempts to “claw back” $148m of milk price “overpayments” from its farmers relating to the previous 2015-16 year — debt was unsustainably subsidising about 30c a kilogram of the current $4.95 a kilogram milk price.
“Our farmers told us that the earlier we came out with the opening milk price (for 2017-18), the better it allowed them to budget and plan for the next season. We have done that but we have also opened at a prudent value,” Mr Mervis said.
“Many of us recognise the rebuilding of Murray Goulburn is a journey that will take time. We have taken decisive steps but we still have a long way to go (and) we hope our supplier base will support us through this journey because this is their business.”
MG told its farmer-suppliers yesterday it hoped to be able to lift its milk payments throughout the 2017-18 season to reach an average of $5.20-5.40 a kilogram of milk solids by mid-2018.
Source: The Australian
Link: http://www.theaustralian.com.au/business/companies/debt-burden-pushes-murray-goulburn-farm-milk-price-down/news-story/f58b6a484166d495d256a6a20d557997
