MURRAY Goulburn, its dairy farmer suppliers and towns like Leongatha, with so much invested in the big Australian co-operative, are at crisis point over the stunning announcements made by the firm last Wednesday.
But they may not appreciate just how acute the level of threat is, according to Mt Eccles dairy farmer Bernie Lubitz.
For all the hullabaloo that the profit downgrade, milk price cut and departure of top MG executives caused during the week; Mr Lubitz fears we may have missed the point.
And he is calling for a complete reassessment of the milk price claw-back strategy outlined by the board last week, which he says may actually be an incentive for suppliers to leave the firm.
“We’ve been told that they’ve basically overpaid us $200 million this year for our milk but they haven’t left themselves enough time to make the adjustment,” said Bernie this week.
“The $5.60 they were going to pay us is no longer feasible, they say, and they are expecting to pay us between $4.75 and $5 for the rest of the year.”
He says $6 per kg is the minimum sustainable price.
“They think they’ll be able to claw-back $30 million of the expected payout this year which leaves $170 million to be recovered over the next three years.
“The board’s current solution of taking 30c to 50c per kg milk solids off us over the next three years assumes that all farmers will continue supplying MG for what is effectively a below-market return.
“But every litre of milk we lose makes MG less viable.
“Under that system, for every supplier that leaves, the debt grows larger on those that remain. In effect, it’s an incentive to go.
“A lot will simply say, stuff it, I’ll take what I can get from MG this year and go for the best price elsewhere next year, leaving the debt behind.
“It’s Bonlac all over again.
“It’s bad enough losing a few suppliers but if this starts a stampede, it’s bad news for everyone, including towns like Leongatha that rely so heavily on Murray Goulburn.
“It’s bad for the industry.
“I blame the board for taking their eye off the ball, the two specially qualified directors and the risk and audit committee that was supposed to keep an eye on these things.
“It’s the governance that’s the problem. How could the market position have deteriorated so quickly?
“At the meetings we had with them six weeks ago, everything was on track and people have gone out and made decisions on that. We’ve renovated our pastures,” he says, indicating reseeded paddocks that are finally starting to come away as a result of recent rain.
“People have bought in feed, made their plans and now, those sailing a bit close to the wind, will have to go and plead their case to the bank manager again.
“He’s going to say “what are the options for a better return?”
“Some older farmers will simply take it as a signal to leave, others will just walk.
“The chairman (Philip Tracy) has got to go. So has the deputy chairman (Ken Jones) and the directors coming up for election shouldn’t stand again.
“It’s a mistake to think that the suppliers can bankroll the mistakes made by the board and underpin the returns to the unit holders and the shareholders by forgoing income.
“Short term it’s an incentive for them to leave and that would be a disaster.”
Mr Lubitz says at the very least, the funds they are going to clawback from the suppliers should be acknowledged in the form of share options, to at least give the funds some value.
Mr Lubitz has also been critical about how the whole thing has been handled, saying that the announcement of the CEO Gary Helou’s departure, along with that of the CFO Brad Hingle, only exacerbated the market reaction to the profit downgrade.
And like many others, he’ll be wanting answers when Mr Tracy and the interim CEO David Mallinso hosts meetings with local suppliers at the Leongatha footy rooms this Wednesday, May 4 from 11.30am-1pm and later in the day at the Maffra footy rooms from 7.30pm to 9pm.
“What are we going to do?
“I don’t know. We actually don’t know enough to make a decision like that at this stage and hope to know more after Wednesday.
“They say they’re sitting on a lot of product, that adult powders are the problem and the Australian dollar but they did their calculations on 0.76c so I don’t see how it can be the dollar.
“Six weeks ago, there was no indication of any problems. How did we get to this?
“We need a strong co-operative in Australia and I would like to support that but at what price?”
MG can’t make suppliers bankroll unit holders