WHY would Murray Goulburn introduce a system for paying back the so-called loans it “advanced” to dairy farmers in the final months of the last financial year, when it was clearly going to act as a major disincentive for them to stay with the firm?
And having realised its mistake, why has it taken the firm so long to react, months after they’ve lost 100s of suppliers to other processirs?
We got an answer to the first question but not so much the second when the Sentinel-Times spoke to MG Chairman Phil Tracy
at the South Gippsland Dairy Expo last Thursday.
“That’s one of the reasons why we’re reviewing it,” Mr Tracy said.
“The MSSP (Milk Supply Support Package) is under review. We put it in place to protect the suppliers’ finances, to help carry them through this difficult time. The alternative was to leave them exposed when the price fell.
“It was in effect an advance paid with milk supplied between May 11 and June 30. There wasn’t enough value left in the milk pool to pay them at the higher level,” he said.
Mr Tracy said the board only had a couple of days to respond to the situation and for legal reasons felt it had only two options open to it, leave the low price in place or extend loans to the suppliers to soften the blow.
He also said the firm had a fiduciary responsibility to recover the additional $183 million it paid out in that time but he now recognised there may be another way to do it.
Asked what the alternatives were now, he said:
“We’ll leave that up to the review but, while we’re still in the dip, we have seen signs of a recovery which may open up other courses of action. The global auction results have been better and the seasonal conditions are good.”
Murray Goulburn said last week, the MSSP had allowed the co-operative to pay its suppliers an average farmgate milk price of $5.53 per kilogram of milk solids for 2016 rather than the final farmgate milk price of $4.80.
However it left suppliers with a $183 million debt to be paid back over the next three years.
Under the present system, not only don’t you have to pay your share of the debt if you leave but those who stay have to pick up more of the tab.
The Murray Goulburn board expects to make an announcement by the end of the month of October.
Please explain, Mr Tracy