Embattled milk processor Murray Goulburn has backed a commodity milk price index as a way of providing more transparency for dairy farmers who are facing mounting debts after a price cut by the cooperative and followed by Fonterra.
The Murray Goulburn board and its chairman, Philip Tracy, were called to a crisis meeting with Malcolm Turnbull and the deputy prime minister and agriculture minister, Barnaby Joyce, following a Coalition promise made during the election.
While Joyce flagged nothing new in a post-meeting statement, Murray Goulburn reported to suppliers the coop was looking closely at the establishment of the commodity milk price index, a promise made by Joyce ahead of the election.
Tracy posted a letter to the cooperative’s dairy suppliers on Tuesday night, suggesting the company accepted the need for more price transparency for dairy farmers.
As part of the government’s dairy package during the election, Joyce committed $2m towards the establishment of a commodity milk price index designed to give better information to dairy farmers faced with management decisions through the financial year.
“MG’s pricing mechanism has worked effectively for many decades and through many industry cycles but we do believe there is scope to improve the transparency of pricing for Australian dairy farmers,” Tracy wrote.
“We support the call for industry-wide consultation to ensure that the index is a true indicator of commodity prices and meets the requirements of the Australian dairy industry as a whole.”
The government has not yet released details of exactly how an index would work.
While an index would aggregate global prices to give farmers more information, the dairy crisis was precipitated when Murray Goulburn slashed its milk price and applied it retrospectively. When Fonterra followed suit, many farmers were left owing money already paid for milk supplied.
The Murray Goulburn decision came after a partial float of the cooperative to raise funds for infrastructure. The processor’s conduct is under investigation by the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission.
As the meeting took place, Nick Xenophon has called for the return of free school milk, a short-term temporary milk levy, contract reform to outlaw retrospective price changes and an independent review of the dairy industry, which he describes as “verging on market failure”.
He has called for a trial of the 1950s school milk program, which provided milk to all primary school children, in a bid to resolve the crisis that has left many dairy farmers owing hundreds of thousands of dollars.
“Dairy farmers deserve a fair day’s pay for a fair day’s work and right now they’re actually paying for the privilege of milking their cows and that is just absurd,” Xenophon said.
“We should be looking at a temporary levy in the short term to ensure dairy farmers don’t walk off the land and that should be part of a robust systemic independent look at the dairy sector because clearly it appears to be verging on market failure given what has occurred.”
After the meeting, the agriculture minister released a statement that said the government would work with dairy farmers and processors to strengthen the industry.
“While there are current global oversupply issues impacting our markets and forcing down world dairy prices, the long-term future of the dairy industry looks strong,” Joyce said.
“Global consumption of dairy products is expected to increase by 2.2% year on year through to 2024 – by 25% over 10 years. The strongest growth in consumption is projected for developing countries and Australia is well positioned geographically as a potential supplier to these markets.”
But the government has yet to suggest any new concrete action other than the concessional loans program, which is money provided by the federal government but administered by the states.
On Monday, only one loan had been approved but the Victorian government has confirmed on Tuesday that six loans had been approved with 62 applications.
Turnbull and Joyce will meet with the other dominant processor Fonterra next week, before a symposium that brings together dairy farmers, processors and retailers such as Coles and Woolworths.
Dairy farmer Marian Macdonald said she was not surprised at the low take-up of concessional loans by dairy farmers at this time of year.
She said the concessional loans were difficult to access, convoluted and most people required their accountant or rural financial counsellor to complete them.
“It all comes on top of calving where we get up in the middle of night to check cows, as well as tax time,” Macdonald said. “Our advice has been to go to our own banks first but I think more will apply [for government loans] after this busy period.”
Labor’s agriculture spokesman, Joel Fitzgibbon, said the board members had questions to answer on the way the partial float was undertaken.
“It was in the interests of the CEO, the chair and the board to err on the upside on those [price] assumptions because they wanted the farmers to agree to the proposition of raising money on the market and they sort of encouraged them to agree by convincing them that they were going to get this high price,” Fitzgibbon said.
“And of course they wanted the investors to give over their money and they did so by offering on a good return based on a high price.”
Labor has called for a change in the profit-sharing mechanism that has seen Murray Goulburn generate a profit of $40m last financial year. Fitzgibbon said the money should be redistributed to dairy farmers.
“There is only one solution and that is for the board to send more money back to the farmers, rather than retaining profits and sending money to the Collins Street investors,” Fitzgibbon said.
“The Collins Street investors don’t win if there are no farmers left. Now if Barnaby Joyce can’t walk out of that meeting and say the MG board have agreed to send more money back to the farmers that meeting will have been a failure.”
Murray Goulburn’s managing director, Gary Helou, has since resigned.
Source: The Guardian
Link: https://www.theguardian.com/australia-news/2016/aug/16/nick-xenophon-calls-for-free-school-milk-scheme-to-help-rescue-dairy-industry