Murray Goulburn price cuts hurt industry, rivals say

Murray Goulburn’s price cuts were a “demonstrable case of leadership failure”, Parmalat told a Senate inquiry.

In its own submission Murray Goulburn defended its price support package.

Parmalat chief Craig Garvan has used his submission to the Senate Dairy Inquiry to launch a full-scale broadside against industry leader Murray Goulburn, accusing it of basic poor management.

Garvan said the decision to cut milk prices to farmers in April was a “demonstrable case of leadership failure by a systemically important industry organisation.”

“The extraordinarily poor management and governance at Murray Goulburn resulted in the setting of a 2015/16 opening price that appeared unrealistically high to other industry participants,” he added.

Garvan noted: “This has caused not only short-term distress for both its suppliers and the wider industry, but longer term it undermines our ability as an industry to grow and succeed in an increasingly global market.”

In its submission Lion Dairy didn’t attack MG directly but made its views known, saying “retrospective changes in milk price including price cuts are anathema to Lion as they undermine trust, drive volatility and damage the ability of farmers to plan for and invest in their businesses.”

Lion noted it did not support the cuts “as a matter of principle.”

Its views were backed up separately by Bega boss Barry Irvin.

MG boss Gary Helou lost his job around the time of the price cuts and the board is considering changes to its treatment of farmers, including a possible forgiveness of some of the $183 million in debt incurred last financial year through the price cuts.

This is complicated because it impacts on the treatment of investors in its listed vehicle, some of whom already have a class action ongoing against the co-op.

The ACCC is also investigating the price cuts.

In his submission to the inquiry, Tasmanian Deputy Premier Jeremy Rockliff noted in May he wrote to the ACCC “expressing my concerns over the impact of the processor’s cuts and surrounding circumstances to ensure that all relevant laws and regulations have been upheld.”

Parmalat’s Garvin attacked the MG corporate model.

“Nowhere in the world has a dairy model worked where it’s half listed and half co-operative without some form of pre-agreed formula that defines the farm gate price and delivers transparency in price signals.

“Murray Goulburn wanted what Fonterra New Zealand had but never recognised the leadership, education, price setting practices and the continuous and early communication of price risk that underpinned the NZ story.”

“Transparency of global market information constantly communicated to farmers in terms of forecast and outlook is essential. Murray Goulburn did the opposite,” he added.

Garvan called for the establishment of a farmer/processor code of conduct to give farmers more confidence .

In its own submission Murray Goulburn defended its price support package.

It has promised to tell farmers before the October 28 meeting what decision it has taken on the package.

Outsiders question the classification of the increased debt as an asset and wonder how co-op auditor Pricewaterhousecoopers approved the classification in the balance sheet as an asset.