In what is probably Barry Irvine’s strongest statement yet on the debacle, which has seen thousands of Victorian dairy farmers lose two years’ profits overnight, he said, «When you see companies saying that they are going to make a profit but they’re going to cut the prices to farmers so dramatically, it does not seem fair».
«I’ve got a great deal of respect for farmers, [who could be described] as the weakest seller, pay for the mistakes of the business and I think that’s very disappointing.»
He said MG should pay the farmers the earlier contract price.
«If I could be as direct as I could be, I’ve been in this industry a long time, indeed I’m a dairy farmer myself; so I sit there and say ‘I don’t agree with this decision, I think it was wrong, I think it should be changed’.»
Pressed to explain if that meant MG should give the money back and wait to drop prices in July, Mr Irvine was direct.
«Yes, I don’t hide from that,» he said.
«There was a position put to farmers which is not correct, which is ‘you can create a business that can beat the market’.
«Clearly that’s not possible and there’s been plenty in the industry saying throughout the year that, ‘that’s not possible’.
«We are too far into the year to change a position that’s been promoted, and reinforced for a great part of the year.»
Bega Cheese holds steady with a warning
Bega Cheese’s price to farmers remains at $5.60 per kilogram of milk solids, the same price MG and Fonterra were paying before announcing retrospective cuts.
Dairy analysts universally agree the $5.60 price will have to drop in the new financial year.
«We have been saying to farmers, ‘the beginning of next [financial] year that it will be a challenging milk prices’,» Mr Irvine said.
«I think farmers were aware those dark clouds were there, these are separate issues.
«But that’s very different to changing the price so late in the year.»
Mr Irvine welcomed the Federal Government’s support package, which includes $555 million for concessional loans, $55 million of which is immediately available.
Farmers will be able to apply for loans of up to $1 million, or half what they owe, whichever is less.
From August 1, the interest rate on the loans will be 2.66 per cent and offered over a 10-year term
Mr Irvine said it was crucial the loans were offered quickly, and not in a conservative way.
Undercutting the dairy sector
In February, Murray Goulburn undercut Bega Cheese in the supply contract to Coles supermarkets, for cheese.
«I don’t think cutting value of the domestic market is ever a good strategy,» Mr Irvine said.
«In Europe and America, the domestic market is healthy with good margins.
«In Australia, value has been cut out of the domestic market, and quite frankly it’s no good saying ‘it’s Coles’ and Woolworths’ fault’.
«Somebody was offering those cut value deals.
«If you’re going to take value out of your safest market, the domestic market and then compete against the world on the international markets, that’s a pretty risky strategy.
«You need to build value in all markets, but it’s obvious to all now, how MG’s strategy went, because it’s inherent in their announcements.»
Crunching global dairy numbers
Gary Helou resigned as MG’s managing director on the day the company announced farmer price cuts.
He is yet to speak publicly since announcing his departure.
Mr Helou was the driving force behind the co-operative’s partial float on the stock exchange last year, in a bid to raise $500 million to invest in dairy processing.
But as the ABC’s Landline program reported in May this year, MG had not factor in a global dairy glut and shrinking Chinese demand.
GARY HELOU, THEN MD, MURRAY GOULDURN (Aug. 2015): The idea behind the $500 million capex is to give us a cutting-edge, lowest-cost supply chain, value-add product into the world market. Today, about 30 per cent of what we sell is in commodities. Four years ago, it was more like 50 per cent. So this shift away from commodities has given us a 70 per cent portfolio that is anchored in consumer brands and in traditional powders which have higher prices and more stable margins. That’s the reason why we’re able to maintain the $6 this year and obviously shooting for another $6 next year.
PIP COURTNEY: A week before the profit downgrade, Gary Helou told a public forum all was well. David Williams was in the room.
DAVID WILLIAMS: I heard him say two things. One is that a $6 milk price was justifiable and probably achievable and achievable into the medium term, and the second thing I heard him say was that there was an enormous amount of demand for Murray Goulburn product in China.
Australian Dairy Farmers wants ‘fairness to prevail’
Dairy farmers advocacy body Australian Dairy Farmers (ADF) said it had heard the calls for a reversal of major processors’ decisions and it supported the intent behind the call.
«Damage was done when a major processor stepped down their price in 2009 and then reversed the decision,» the organisation said in a statement.
«We want fairness to prevail. Processors must address the unfairness of their actions.
«The recent step-downs never should have occurred.»
ADF said it was doing everything possible to make sure dairy farmers were «never put in this position again».
«This includes working in particular with processors, as well as the ACCC, ASIC and the Federal Government to address unfair contracts, improve supply chain transparency, and better balance the risk between retailer, processor and supplier,» the statement read.
Source: ABC