Angry farmers walk out on Murray Goulburn milk contracts

Angry dairy farmers in Victoria and Tasmania are leaving troubled milk processing giant Murray Goulburn in droves.

Dairy farmer Brendan Martin with his herd near Rochester. Picture: David Geraghty

Angry dairy farmers in Victoria and Tasmania are leaving milk processing giant Murray Goulburn in droves, saddling the struggling company with less milk to process, looming factory closures and a $183 million “over­payment” burden to claw back from its fewer remaining producers.

The farm revolt has accelerated during the past month as rival dairy processors paying more for milk have found room in their factories for milk from some of Victoria’s biggest and best farmers.

About 200 of Murray Goulburn’s farmers quickly left the co-operative after it crashed its milk price in April by a shock and retrospective 15 per cent, taking 270 million litres, equal to 7 per cent of its annual milk supply, with them.

Murray Goulburn’s losses have haemorrhaged since last month to an estimated 350 million litres as large, financially healthy and long-term dairy businesses have turned to supply competitors such as Bega Cheese.

The lack of trust once-loyal farmers now have in their former co-operative, which partially listed on the stock exchange last year, has forced Murray Goulburn to ­resort to tough tactics against rival dairy processors and even its farmers to slow the exodus.

One large Victorian farmer, David Christie, whose family had been with Murray Goulburn since its formation in the 1950s, switched the four million litres of milk produced on his Rochester farm in northern Victoria to Bega’s nearby Tatura plant last week, despite having to refund forward incentive payments to Murray Goulburn.

In the same Rochester dairying region, two other significant producers with large milking herds and good businesses quit Murray Goulburn this week after the co-operative’s rock-bottom farm milk price for the 2016-17 year of 33c a litre ($4.31 a kilogram of milk solids) proved far too low to wear.

Brendan Martin, who manages an 800-cow herd south of Echuca, also in northern Victoria, on behalf of the local Ward family producing seven million litres of milk a year, last week switched from Murray Goulburn to better-paying Tatura Milk after space in the rival processor’s operations ­finally opened up for his milk.

“We left pretty easily; they had nothing to hold us and Tat Milk was offering us 8c a litre more than MG; that’s $50,000 a month more income for the same work and the same costs,” Mr Martin said.

“I think MG was surprised (when we left); they were banking on no one else having the capacity to take such a lot of milk from us bigger suppliers.”

Three big farmers in one district walking — and taking 16 million litres of milk and their 2200 cows with them — is not good news for Murray Goulburn.

The same pattern is being mirrored in other dairy districts of ­Victoria, with Murray Goulburn farmers in the west of the state switching to supply Canadian-owned Warrnambool Cheese and Butter Company and the new Midfield-Louis Dreyfus milk powder factory at Penola.

To stem the revolt, Murray Goulburn recently warned all major dairy processors in a legal letter that any active attempts to convince its dairy farmers to shift processors and take their milk away could be viewed as “aiding and abetting the breaking of a ­contract”.

Bega Cheese chairman Barry Irvin confirmed that executives at its subsidiary Tatura Milk were ­recently phoned by Murray Goulburn’s general manager of milk supply, Ross Greenaway, threatening legal action if farmers with Murray Goulburn contracts were approached or encouraged to move.

“A couple of specific cases around Rochester were mentioned, but there are many more; my view is bring it (legal action) on,” said Mr Irvin, a fierce critic in recent months of Murray Goulburn’s “immoral” treatment of its milk farmers.

“Some of these guys are coming to us in tears, asking us to take them on; this is not us twisting their arms.”

Big farmers now swapping milk companies are also adamant there is no milk-hunting going on; that they made the initial approach and are willingly to leave Murray Goulburn to improve their profits. Others argue that any past contract to supply milk to Murray Goulburn was now null and void since the company had not acted fairly or in good faith towards its suppliers with its retrospective milk payment clawback — an issue the Australian Consumer & Competition Commission is investigating and on which two class actions will focus.

Lifetime Victorian dairy farmer Paul Weller has two farms with 750 cows at Lockington and has ­always supplied more than five million litres of milk a year to Murray Goulburn’s Rochester butter factory

Even after the co-operative shocked its farmers with the backdated price plunge, Mr Weller — a former Murray Goulburn board member — stayed loyal, imagining the milk price offer for the 2016-17 year from July would be better.

“But when the opening price came out, it was an easy com­mercial decision for us to move; Fonterra offered to pay me $4.54/kg while MG said the best they could do was $4.10/kg; I just rang and said I was leaving,” Mr Weller said.

Murray Goulburn this week admitted in farmer meetings and to the ASX that its attempt to ­reduce the impact of its shock milk price drop by spreading low prices over the next three years to recover its $183m overpayment bill — euphemistically known as its “Support Package” — had backfired, with a resulting haemorrhaging of significant milk supply.

“It has become very clear that the milk supply support package is potentially proving counter-­productive (to) their continuing loyalty,” chairman Phil Tracy said.

Farmers such as Mr Martin, Mr Weller and Mr Christie cannot be legally pursued for the $183m collective “debt” on milk they sold in 2015-16, which the company claims it is now owed back.

Murray Goulburn has admitted it will have to close processing plants once its milk supply losses fall below the 10 per cent or 400 million litre mark, a tipping point it is now close to reaching.