Global Food: MG boss says higher milk price can be sustained

Murray Goulburn CEO Gary Helou says it can hold the price paid to farmers at or above $6 a kilogram.

Laura McBain and Gary Helou at the forum yesteday. Picture: Stuart McEvoy.

Murray Goulburn chief executive Gary Helou has declared that the listed co-operative will be able to hold the price paid to farmers at or above $6 a kilogram in the future as it completes its transformation into a producer of value-added dairy products.

Last year Murray Goulburn, whose units listed on the Australian Securities Exchange last July, held the price paid to farmers at $6 a kilogram, much higher than the prices paid by its competitors, which has put pressure on the entire industry to cut costs to compete.

In late February Australia’s biggest farming co-operative said it expected to maintain its price at $5.602 per kilogram in 2016, at the bottom end of the previous guidance provided of $5.60-$5.90.

At the time Mr Helou described the previous six months as an “extraordinary” period of weak global dairy prices and noted the latest forecast was subject to there being no further material deterioration in dairy commodity prices or unfavourable changes to the current $A-$US exchange rate.

Analysts have claimed that a sustained global slump in dairy prices due to lower demand in China and Russia and the rising dollar could put further pressure on MG to reduce the milk price it pays to farmers despite rapidly transforming itself into a producer of value-added dairy foods.

But Mr Helou declared yesterday that $6 and above “aspirationally is where we should take this business”.

“It is absolutely doable and feasible through engaging in the right products in the right markets, and upgrades and the investments that we’ve made. So if you ask me long term where we’re taking this business, well, I would like to take it to an achievable $6, regardless of what’s happening in the commodity markets. I think that is a very realistic target,’’ he said.

Up to 70 per cent of Murray Goulburn’s volume now goes to value-added dairy foods. Mr Helou said in February this would rise to 80 per cent over time.

The co-operative increased sales of its higher margin dairy foods business by 28.1 per cent during the first half of the 2016 financial year when it reported a half-year net profit after tax of $10m, compared to $15.2m in 2015. The result was affected by low dairy commodity prices.

Mr Helou stressed yesterday that the company would continue to support farmers under the company’s profit-sharing arrangements.

“I understand how tough they’ve had it and how important they are to the chain ...

“So I think it’s appropriate that we lift the price and make it less volatile. And we’re open about this.

“We’ve got the mechanism, we’ve got the charter (and) that translates the improved profitability to higher farm gate prices.’’