Dairy farmers go to war on Murray Goulburn, Fonterra cuts
May 9 2016
A group of dairy farmers is preparing for “war” after Murray Goulburn and Fonterra slashed the prices paid for raw milk. The group, which calls itself Farmer Power, is calling on federal Agriculture Minister Barnaby Joyce to “urgently intervene to establish a totally independent review” of Australia’s dairy industry.
Group president Chris Gleeson said the cuts to the farm-gate price threatened to push farmers off the land, cull herds for meat, or switch completely to beef farming. “Saleyard figures indicate a real risk that herd numbers are already being reduced, and that without immediate action the industry will continue its downward spiral,” Mr Gleeson said.
Murray Goulburn reduced its farm-gate price from an average of $5.60 to $4.75-$5 last month after it said it would struggle to meet even half of the profit forecast outlined in its prospectus for its partial float on the ASX less than a year ago. The downgrade stemmed from the co-operative’s management over-estimating Chinese sales of adult milk powder, which led to the resignations of managing director Gary Helou and chief financial officer Brad Hingle. Two board directors also left the company last week.
Max Jelbart, a farmer from Gippsland resigned due to ill health, while the co-operative didn’t give a reason for the departure of former UBS chief executive Kiera Grant. Although chairman Philip Tracy said Ms Grant could not have “reasonably” expected the profit downgrade, considering she joined the board in March.
Fonterra, which is obliged to meet Murray Goulburn’s prices under its supply agreement, cut its price from an average of $5.60 to $5.
Cuts, or “step downs” as they are known in the industry, in milk price are rare, and last happened in the depths of the global financial crisis. They threaten to plunge many farmers into a loss-making position, because it lowers the average price they are paid for the entire season. This means they will be paid well under Murray Goulburn’s $4.75-$5 and Fonterra’s $5, in the next two months in order to meet those new average prices.
Mr Gleeson said the cuts were in effect a “retrospective reduction in milk price”, which was “unacceptable” and the group would fight them. “Farmers cannot possibly farm in this environment,” he said.
Farmer Power, which is separate from the main farmer industry groups Australian Dairy Farmers and United Dairyfarmers Victoria, is planning a rally for this Wednesday at Terang in south-west Victoria.
The meeting was aimed to place farmers on a “war footing”, Mr Gleeson said, and would give farmers an opportunity to vent their concerns to politicians and the various industry groups. About 600 farmers attended a similar rally three years ago, which Farmer Power hoped would lead to the creation of a plan to combat low milk prices and dry conditions.
Although support was strong, with government and the industry bodies promising action, Mr Gleeson said “nothing has happened in the intervening period to improve things for the farmers”.
“In fact the situation has worsened.”
Fonterra and Murray Goulburn have released support packages to farmers to help cushion them against the cuts. Murray Goulburn will borrow $95 million to $165 million to pay farmers to lift its average price to $5.47.
Morgans analyst Belinda Moore said this shouldn’t hinder Murray Goulburn’s planned upgrades to its factories, part of its shift from producing commodities to higher value-added products, because its gearing ratio would be about 43 per cent – well within its policy range of 30 to 60 per cent.
The co-operative will recoup the costs of the support package from farmers, with interest, within the next three years.
Fonterra, meanwhile, will offer farmers loans of up to 60 cents a kilogram to maintain its $5.60 average price. Farmers will have until the start of FY18 to start repaying the Fonterra loans, which will also accrue interest. “We understand that there are huge implications of this price revision to our farmers, and that this is the last thing they want to hear in an already tough season. It is not a decision we make lightly,” a Fonterra spokeswoman said.