Six Ryans IGA supermarkets in regional Victoria will this week switch to Sungold milk to further support local farmers.
Sungold is packaged by Warrnambool Cheese & Butter and will be stocked in large quantities in three IGA stores in Ballarat, and one each in Kyneton, Beaufort and Torquay.
The stores had previously stocked Sungold but only a small range. Ryans IGA General Manager Ben Ryan said that following the dramatic drop in farm gate milk prices his team reviewed their milk offering.
“We looked at what was going to be best for our local farmers in regards to getting them the best price and that was overwhelmingly through Warrnambool Cheese & Butter,” he said. “In the end switching to Warrnambool was a no-brainer.
“It is also a win for our consumers. With efficiencies in Warrnambool’s supply chain, Sungold milk gets to our stores quicker so it is fresher with a longer best before date.”
IGA’s switch to Sungold will result in an additional 1 million litres of milk, produced by local farmers, to be used. This means about 90% of all milk stocked in these six IGA stores will be Sungold.
Sungold milk is well known in the south western district of Victoria. Sungold’s Business Manager Bill Slater said Ryans IGA’s commitment to supporting local farmers was a win for all and it was great that more of the state will get to taste Sungold milk.
“Money going back into the region not only supports farmers but associated industries. In total there are 35 dairy farmers that will benefit from IGA’s decision to switch to milk produced locally.”
Mr Ryan said the stores were committing long-term to Sungold and he hoped other IGA stores would also follow their lead.
Dairy processor Murray Goulburn has lost the $100 million contract to supply Woolworths’ private label cheese, following a competitive tender process.
As the AFR reports, in what has been a bad year for MG, it lost the contract to competitor Bega Cheese. The change will come into force in January.
MG retained the contract to supply Woolworths private label mozzarella shred cheese as well as the contract to supply private label butter, which has been expanded to include additional products and increased ranging. However, these are less lucrative contracts.
MG said in a statement that annualised revenue loss will be approximately $108 million, however the financial impact on MG in FY17 will be limited given timing of existing contracts completing.
MG’s interim Chief Executive Officer, David Mallinson remained upbeat despite the bad news.
“MG continues to enjoy a strong ongoing relationship with Woolworths and they remain a valued partner for our co-operative. We believe our tender to retain this business was competitive, whilst balancing acceptable returns for our products given the current environment for our farmer/suppliers and investors. I can also re-assure our valued consumers that ranging of MG’s Devondale and Liddells products are not impacted by this decision and continue to be available at Woolworths nationally,” he said.
In April, Murray Goulburn downgraded its forecast 2015-16 profit to between $39 and $42 million, down from its February guidance of $63 million. This came after the company had quoted a figure of $89 million in July last year.
As a result, the company retrospectively cut farmgate milk prices and left dairy farmers in a perilous financial position.
Australia’s most influential female foodies are flexing their culinary muscle, warning women about a stealthy danger that threatens the best years of their lives.
Maggie Beer, Lyndey Milan, Kate McGhie, Christine Manfield and Catherine Saxelby are among the food gurus spearheading Healthy Bones Action Week’s Fit, Fab & 50 Challenge from August 1 to 7.
The Week highlights the painful and potentially crippling effects of osteoporosis, calling on women to make a commitment to bone-healthy food, activity and sunshine.
Determined to make a big noise about the silent disease that strikes without any prior symptoms, the culinary experts want women of all ages, especially those heading into menopause, to realise the benefits of dairy foods and embrace the white side.
To spread the word, they have compiled a selection of inspiring, mouth-watering recipes to get you on your way to upping your bone-boosting calcium, while also sharing some of their own insights and experiences around healthy living and loving life.
The Fit, Fab and 50 cookbook is free to everyone who registers for the Challenge here.
By signing up for the Fit, Fab & 50 Challenge women can kick-start their journey to better bone health. Each day during the Week participants will be supported with healthy eating, exercise and wellbeing with prizes and incentives along the way.
Endocrinologist Dr Sonia Davison, from Jean Hailes for Women’s Health, says that while Healthy Bones Action Week is designed to promote a positive and lively health message, the underlying agenda is urgent, especially as Australia’s population ages.
After menopause, bone density falls quickly as the body’s oestrogen levels drop, and women who want to try new adventures and continue to enjoy life are putting their lifestyle at risk by ignoring bone health.
Virtually all Australian women over 50 are not getting their daily four serves from the dairy food group needed to keep their bones strong, as recommended by the updated Australian Dietary Guidelines.
“One million Australians are estimated to have osteoporosis, and six million are estimated to have osteopenia, which is mild bone thinning that can lead to osteoporosis,’’ Dr Davison says.
“Many of these Australians are not aware of this silent process occurring in their bodies.
“Women underestimate the severity of falls and fractures which evidence shows lead to a loss of independence and a faster track to nursing home admission, especially after a bad hip fracture.”
A rapid heating and cooling of milk significantly reduces the amount of harmful bacteria present, extending by several weeks the shelf life of one of the most common refrigerator staples in the world, according to a Purdue University study.
Bruce Applegate, Purdue associate professor in the Department of Food Science, and collaborators from Purdue and the University of Tennessee published their findings in the journal SpringerPlus, where they show that increasing the temperature of milk by 10 degrees for less than a second eliminates more than 99 percent of the bacteria left behind after pasteurization.
“It’s an add-on to pasteurization, but it can add shelf life of up to five, six or seven weeks to cold milk,” Applegate said.
Pasteurization, which removes significant amounts of harmful pathogens that can cause illness and eventually spoil dairy products, is considered a high-temperature, short-time method. Developed by Louis Pasteur in the 19th century, the treatment gives milk a shelf life of about 2-3 weeks.
The low-temperature, short-time (LTST) method in the Purdue study sprayed tiny droplets of pasteurized milk, which was inoculated with Lactobacillus and Pseudomonas bacteria, through a heated, pressurized chamber, rapidly raising and lowering their temperatures about 10 degrees Celsius but still below the 70-degree Celsius threshold needed for pasteurization. The treatment lowered bacterial levels below detection limits, and extended shelf life to up to 63 days.
“With the treatment, you’re taking out almost everything,” Applegate said. “Whatever does survive is at such a low level that it takes much longer for it to multiply to a point at which it damages the quality of the milk.”
The LTST chamber technology was developed by Millisecond Technologies, a New-York-based company.
Sensory tests compared pasteurized milk with milk that had been pasteurized and run through MST’s process. Panelists did not detect differences in color, aroma, taste or aftertaste between the products.
Phillip Myer, an assistant professor of animal science at the University of Tennessee and a co-author of the paper, said the process uses the heat already necessary for pasteurization to rapidly heat milk droplets.
“The process significantly reduces the amount of bacteria present, and it doesn’t add any extra energy to the system,” Myer said.
Myer said the promise of the technology is that it could reduce waste and allow milk to reach distant locations where transport times using only pasteurization would mean that milk would have a short shelf life upon arrival.
Applegate said the process could be tested without pasteurization to determine if it could stand alone as a treatment for eliminating harmful bacteria from milk.
The study was funded by the Agricultural Research Service of the U.S. Department of Agriculture, the Center for Food Safety Engineering at Purdue University and Millisecond Technologies.
Australian Natural Proteins (AYB) has entered into an agreement with the Fijian-based Anthony Family to set-up an organic dairy farm and produce milk and other dairy products for the local Fijian market.
AYB and the Anthony Family aim to purchase a 1,000 acre organic farm and build an initial herd of 500 cows in order to produce 2.5 million litres of organic milk with the potential to increase this to a target range of 5 million litres within three years.
“Following the completion of the planned acquisition of our Australian dairy facilities, Australian Natural Proteins, will combine their expertise in farming and production with the Anthony family’s expertise in order to embark on this exciting opportunity to expand its business into Fiji,” said Paul Duckett, Executive Chairman of AYB.
“The Anthony family have over 50 years of experience in the dairy industry in Fiji, having established the country’s milk supply and distribution.”
With the complete execution of its Dairy Complex (five farms) acquisition in South Eastern Australia currently underway, the company will also be able through its Australian production volume be in a position to “swap” production for finished products into the Fijian market. The current combined milk production of these five farms is over 24 million litres per annum with a herd of 3,500 cows.
The property will also be used to build a pasteurising and bottling plant (likely A$500,000), and using the expertise of the Anthony family to supply the local market. The full volume of production initially will go direct to the consumer market in Fiji.
Fonterra Chief Operating Officer of Velocity and Innovation, Judith Swales (pictured) said in a statement the forecast assumes the Australian dollar will remain at about 74 US cents.
“Our farmgate milk price in Australia is also impacted by global dairy markets given our mix of domestic and export sales,” Swales said.
“While we are still seeing an imbalance between global milk supply and demand there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America. This supports our view of a recovery in global prices as we move through the season.”
Individual suppliers’ milk prices will vary across Fonterra’s supply regions, depending on the individual farm’s milk profile, regional production factors, milk quality and farm management systems.
Murray Goulburn’s forecast farmgate milk price of $4.80 per kgms for 2016/2017 will enforce dairy farmers to try to survive while receiving less for their milk than the cost of producing it.
David Basham, acting president of advocacy body Australian Dairy Farmers told the SMH farmers are likely to have to endure this situation for the next 12 months.
Announcing the forecast yesterday, MG Interim Chief Executive Officer, David Mallinson blamed commodity prices for the forecast.
Mallinson said that, according to the latest data, excess global inventories may now be more than the equivalent of 6 billion litres of milk.
“We acknowledge FY17 will be a challenging year for our suppliers. We have set a robust forecast, and while there are a number of areas which may provide upside to our FY17 forecast, we do not believe it is prudent to include these in our forecast at this stage. Should more positive conditions emerge, MG will be vigilant in ensuring any upside passes to our suppliers and investors,” he said in a statement.
Dairy processor Bega Cheese will cut its farmgate milk price by 11 per cent when the new season commences on July 1.
As the ABC reports, the company announced yesterday that it will cut the amount it pays farmers from $5.60 Kg milk solids to $5.
The announcement follows the decisions of the two major processors, Murray Goulburn and Fonterra to retrospectively cut farmgate prices in April.
“Farm gate milk prices are ultimately driven by returns we receive from markets both within Australia and globally. Many of the factors affecting these markets such as global supply, demand, currency relativities and competitor behaviour are beyond the control of individual companies,” commented Executive Chairman Barry Irvin.
“Bega Cheese’s long term strategy of building value added business platforms does assist in enhancing the base value of dairy products and therefore farm gate milk price, but cannot insulate farm gate milk prices from the reality of the markets.”
Dairy giant Fonterra has announced several role changes within its current senior management team, as it aims to become a leading consumer and food service business.
Announcing the changes, Chief executive Theo Spierings highlighted the new roles of Jacqueline Chow, Judith Swales and Miles Hurrell as most significant.
Chow, previously Chief Operating Officer Velocity, is now Chief Operating Officer Global Consumer and Foodservice. She will lead the Global Consumer and Foodservice business unit into 2017 after which she plans to retire from executive life and return to Australia to pursue a portfolio of board directorships.
Judith Swales, previously Managing Director Oceania, is now Chief Operating Officer Velocity and Innovation. Fonterra Australia will continue to report through to her.
And Miles Hurrell, previously Group Director of Co-operative Affairs, has been named as new Chief Operating Officer Farm Source.
“Miles, Jacqueline and Judith are taking on different and expanded roles while Lukas’ role is unchanged. Robert and Kelvin have new titles that properly reflect the breadth and importance of their roles,” said Spierings.
In other changes, Kelvin Wickham, previously Managing Director of Global Ingredients, whose role and position remains unchanged, has been named Chief Operating Officer NZMP; and Robert Spurway, previously Managing Director Global Operations, is now Chief Operating Officer Global Operations. Chief Financial Officer Lukas Paravicini’s role and position will remain unchanged.
A2 Milk has lifted its full-year profit guidance as demand from China continues and the company adjusts to new infant formula regulations in that country.
The company said in a statement that it is coping well with the regulations and, as such, group revenue is now forecast to be in the range of $350 million to $360 million and Group Operating EBITDA in the range of $52 million to $54 million for the 2016 financial year.
“In addition, the balance sheet position is forecast to be strong at year end reflecting improved operating cash flow in the second half with cash on hand likely to exceed $50 million,” the statement said.
“The Company is also pleased with the recent announcement that it will be added to the S&P/ASX 200 index effective after the close of trading on 17 June 2016.”
In addition, the Victorian Government wants the loans to be offered at a 1.7 per cent interest rate, not at 2.71 per cent as Joyce announced.
The disagreement has delayed implementation of the assistance package and, as a result, no farmer has yet received a loan.
“While they dither, farmers are waiting,” Joyce (pictured) said.
Dairy farmers are dealing with the recent dramatic drop in the amount they are being paid by milk processors. Murray Goulburn cut its price from $5.65 to between $4.75-$5.00 kgMS, while the other major dairy processor Fonterra cut its price from $5.60 per kgMS to $5.00 per kgMS.
The trend towards cold pressed and unpasteurized food and beverages in Australia hasn’t gone unnoticed.
SMH reports that consumers will be able to buy unpasteurised milk legally for the first time in Australia from Thursday. Sydney company Made by Cow has obtained the approval of the NSW Food Authority to use cold pressure as an alternative to conventional heat pasteurisation and sell “cold-pressed raw milk”.
High Pressure Pasteurising (HPP) has been in use in other industries for quite some time. For the first time, an Australian company milk product will be processed by HPP for commercial use by The Made by Cow company. It may be the first in the world to use an HPP process for commercial milk. This stands a significant chance of disrupting the industry due to the dramatic savings in energy related costs associated with traditional pasteurisation. Here we explore the benefits of HPP and how this technology can add value to your food production business.
HPP, unlike many heat treatment processes, can be achieved post packaging and often with minimal impact to flavour or texture. An excellent example of this is orange and apple juice where the HPP process seems to have no effect on texture or taste of the finished product. HPP juices have become the premium brand products.
Sectors such as dairy, ready meals, pharmaceuticals, baby food, wet salads, fruit, seafood, smallgoods and chicken are positioned well to take advantage of HPP technology
Key benefits of HPP include:
improved food safety by post packaged pasteurisation
improved food quality often matching that of fresh produce
extension in shelf life providing the ability to send products to previously unreachable markets.
uses much less energy than other processes
These benefits can often result in a premium checkout price.
Should the cold pressed trend continue and HPP reaches a critical mass through continued growth, many food processors will be looking to add this technology to their existing processes, in order to keep ahead of the herd.
Below is an excellent short video from Millard Refrigerated Services of how HPP works and its key benefits.
A group of three West Gippsland dairy farmers may bypass the major dairy processors and sell milk directly to a Melbourne yoghurt and cheese maker.
The ABC reports that Picnic Dairy Foods Managing Director Ibrahim Ozdemir met with farmers, Andrew Russell, Trevor Mills and Michael Perry at a property in Longwarry North on Monday and outlined the proposal.
The company currently uses about 80,000 litres of milk a week which it buys from a milk trader.
Ozdemir said he wants to pay the farmers about $6 per kilogram milk solids, which is significantly more than the $4.75 and $5 per kilogram they currently get from Fonterra.
Fonterra and the other major processor Murray Goulburn recently slashed their farmgate prices without warning and left suppliers in a difficult financial position.
“As a company our philosophy has been to support farmers and pay them prices they deserve,” Ozdemir told the ABC, adding that the big processors had given them “an unfair deal”.
Mills said he liked the proposal Picnic Dairy Foods is offering. “I’ve got no ties to Fonterra at all,” he said.
“I’ve given them my loyalty for 20 years and as far as I’m concerned they’ve lost my loyalty now.”
Meanwhile, as the ABC reports, the Victorian Government is considering offering council rates relief to dairy farmers who are coping with the low milk price.
Campaspe Mayor Leigh Wilson wrote to Agriculture Minister Jaala Pulford and suggested the measure. He pointed out that similar measures have been taken in the past to assist farmers during times of drought.
A fall in the farm gate price of milk and the pain felt by dairy farmers as a result, has many pointing the finger at supermarkets for discounting the price in the so-called “milk wars.” However the suggested solution of raising the price we pay for milk to pass on more profit to farmers is misguided.
Supermarkets have been driving down the cost of basic goods like milk since 2011. But the actual underlying culprit for the fall in prices has been the global glut of supply relative to demand driving down the world price, with only a partial offset from the decline in the Australian exchange rate.
Others have advocated for a return to the regulation of the 20th century with a domestic price set at a premium, or retailers selling branded milk at a premium and returning a share to dairy farmers. In reality, the likely income gain from increasing prices for domestic milk sales would be small.
Australia’s current industry policy is to let market forces set prices, investment and employment across different sectors and industries, rather than government “picking winners” and subsidising selected industries. Setting prices for the dairy industry, would be a return to the “bad old days” with a risk of a decrease in farm productivity.
If more people switched to buy a more expensive brand of milk, how many would it take to make enough returns to save dairy farmers? At the moment the maximum amount of milk sold for a dollar a litre would represent about 8% of current farm production.
The remaining 75% of farm milk is used to manufacture a range of products, including butter, cheese, skim milk powder and whole milk powder. Roughly half of the butter and cheese is exported, and 70% of the milk powder. Australia imports cheese as well as exports. The Australian dairy industry depends on the world market for much of its production.
Another aspect that determines the returns for dairy farmers is the world price for manufactured dairy products, adjusted for movements in the Australian exchange rate. If supermarkets raised the farm gate price of milk above that which other countries pay for milk products, processors would switch from manufacturing these products to processing milk instead.
By the same argument, if some retailers are paying farmers above the export parity price, competitors will bid milk away from exporters and undercut the high payers to drive prices back to export parity. That is, the export price provides both a floor and a ceiling to the price which supermarkets can negotiate.
Australian dairy product exports represent a small share of world trade of dairy products, and a very much smaller share of world production. While it would be an oversimplification to say Australia doesn’t have a stake in setting the global dairy price, a 10% or 20% increase in Australian exports would require a very small export price reduction.
A return to ‘the bad old days’
Set prices for dairy products, and other agricultural products, were phased out as a part of economic reform in the 1980s and 1990s for a more productive economy and the reasons for this remain valid today.
Setting a price for domestic sales, in this case milk, above the export price leads to a battle between different parties and lobby groups as to what price to set, it may also influence consumers’ decisions as to what they buy and arguably some more than others. It could also shift more resources on farms into the dairy industry, chasing a higher price and away from other types of production (which are set by a global price) such as meat or horticulture.
For those dairy farm households facing poverty as a consequence of the slump in world prices, it is more direct and effective to provide direct household support than to artificially increase the product price for all dairy farmers.
Nestlé Health Science today has entered into a strategic collaboration with DBV Technologies aimed at developing and bringing to market DBV’s innovative patch-test tool for the diagnosis of Cow’s Milk Protein Allergy (CMPA) in infants.
CMPA is a difficult to diagnose condition, which impacts up to 2-3 per cent¹ of infants and young children during a critical stage of their development. DBV will leverage its proprietary Viaskin technology platform to develop an innovative, ready-to-use, standardized atopy patch-test.
Today, CMPA is often missed in the primary care settings due to the non-specific nature of symptoms associated with the condition, such as eczema, reflux, constipation, diarrhoea, crying and others.
In the future, DBV’s patch-test will enable early and accurate diagnosis of the condition, leading to early nutritional intervention, thereby creating a strong fit with Nestlé Health Science’s nutritional solutions that helps meet the needs of babies and children with food allergies and intolerances (Althéra, Alfaré, Alfamino).
Under the terms of the agreement, DBV grants Nestlé Health Science exclusive worldwide commercialization rights of DBV’s diagnostic tool. Nestlé Health Science will make an upfront payment of EUR 10 million. DBV will be responsible for the development stages, including industrialization and regulatory submissions. Moreover, DBV is eligible to receive development milestones, and if approved, sales milestones and royalty payments on sales.
Høst A. Frequency of cow’s milk allergy in childhood. Ann Allergy Asthma Immunol 2002;89(Sup1):33-7
A study has found for the first time that one in six adult Australians are choosing to avoid milk and dairy foods, the majority without a medical diagnosis, leading to public health concerns for women in particular.
The survey, undertaken by CSIRO and the University of Adelaide, found that the vast majority of avoiders (74%) are making this choice to relieve adverse gastrointestinal symptoms such as cramps, bloating or wind.
Far fewer participants cited not liking the taste or because they thought it’s fattening for not including diary in their diets.
The study also revealed that the decision to avoid some or all dairy foods is influenced by a range of sources from outside medical practice such as the internet, media, friends or alternative practitioners.
CSIRO’s Bella Yantcheva, behavioural scientist on the research team, explains the significance of the findings.
“The scale of people restricting their diet without a medical reason is very concerning in terms of the public health implications, especially for women.
“It means there is potential for nutritional deficiencies or imbalances, or the risk that an underlying health condition could be going untreated,” she said.
Dairy foods are important for all of us, but especially for women owing to the calcium content, and foods from the dairy and alternatives group are important throughout life to reduce the risk of osteoporosis.
However, the study revealed that more women are avoiding milk and dairy foods than men.
These results follow the team’s similar findings on wheat avoidance, which showed around ten times as many Australians than diagnosed with coeliac disease are avoiding wheat-based foods.
The study reveals that even more people are avoiding dairy products and, in fact, that around one third of the respondents avoiding dairy foods are also avoiding wheat-based foods.
“The numbers show that cutting out significant, basic food groups isn’t a fad but something far more serious,” said Yantcheva.
According to the Australian Dietary Guidelines, dairy and grain-based foods are important for a balanced diet.
They contribute significantly to our intake of fibre, protein and a wide range of essential vitamins and nutrients, on top of calcium in dairy’s case.
“It’s not just about missing out on the food type being avoided and risking your health, but also possibly overconsuming other foods to compensate as well,” Yantcheva said.
The paper is published in this month’s issue of Public Health Nutrition.
“It should never have come to this; $1-a-litre milk price is not sustainable; you are all collateral damage in a five-year war between Coles and Woolworths,” he told a rally of dairy farmers in Melbourne yesterday.
“If we have to have an emergency levy put on milk, so be it.”
“If you put in a floor price, if that’s the Greens policy, I can understand the empathy behind that, but what happens is you end up with massive stockpiles of a product that you can’t move and the thing ends up collapsing and that itself creates a crisis,” he told ABC.
The history of the dairy cooperative Murray Goulburn and its farmer suppliers shows how a close relationship of trust has developed and been broken with the collapse of the farmgate milk price. Roots of the current crisis can be traced all the way back to the deregulation of the dairy industry at the start of the century.
Murray Goulburn was founded in Victoria in 1950 and grew steadily over the next two decades to become the nation’s largest dairy company by 1973. In its 2015 annual report
it recorded total assets of over A$1.84 billion and total revenues of A$2.88 billion. It holds a large portion of the dairy market, in 2016 it was estimated by IBISWorld to have just over 42% of the national market for milk powder and 31% of the national market for milk and cream.
Over half its revenue comes from exports, primarily into Asia. It’s also the nation’s largest buyer of raw milk, employing around 2,400 people and with approximately 2,500 members.
Deregulation and the “keystone” role of cooperatives
The deregulation of the Australian dairy sector started in 1999 and rolled out over the following year. It saw the repeal of existing state legislation regulating the supply and pricing of milk.
The impact of this deregulation was mixed across Australia but it led to the decline in the total number of dairy farmers, from around 10,000 in 2000 to about 6,061 in 2016. It is likely to fall even more over coming years.
Despite increases in the overall size of dairy farms, most remain small-scale, family owned businesses. Dairy farming requires higher levels of capital investment than most other agricultural sectors, with major expenses being automated milking machines.
Milk is now essentially a global commodity and dairy farmers are price takers. With the need to invest more into capital equipment, fuel and stock feed, profit margins in the sector have been squeezed.
Over the past five years the average profit margin for dairy farms has fallen. Any decline in the farmgate milk price will only put many producers into unsustainable losses unless they can increase economies of scale by having larger herds or lower input costs.
Another consequence of the deregulation of the dairy industry has been the decline in cooperatives. The Dairy Farmers Cooperative was sold to National Foods (now Lion) in 2008, and Bega Cheese demutualised in 2011 and listed on the ASX. Today there are about nine dairy cooperatives active in Australia, the largest of these are Murray Goulburn and Norco Ltd from northern NSW.
Cooperatives like Murray Goulburn are different from other businesses. The cooperative should be focused primarily on its members’ welfare and as such it is unusual for them to be able to satisfy the often competing interests of members as patrons and outside investors from the ASX.
A well-run cooperative can be sustainable and profitable. It can serve as a “keystone” business that helps sustain its members. Keystone businesses are those firms that serve as a major buyer or supplier for many smaller “niche” firms, helping to keep the smaller firms more sustainable for an entire industry.
The approach taken in terms of milk supply and pricing is an example. Since the dereguation of the dairy industry Murray Goulburn has effectively set the farmgate milk price across most of the Australian dairy sector. It also takes all the milk its members wish to supply.
This stabilising and coordinating or “keystone” role within the dairy industry has been a feature of Murray Goulburn since market deregulation. Given the size of the cooperative anything that might affect its long term operations will have significant impact on the Australian dairy industry.
The issue of trust in a cooperative
Cooperative enterprises are owned by their members who also have a trading or patronage relationship with them. What differentiates them from other businesses is the democratic governance of the business, with member-owners having a say in major strategic decisions.
Management of a cooperative is therefore more complex and the board and executive leadership team must maintain the trust and loyalty of the members to keep the business strong. They also need to balance the member’s interests as suppliers (patrons) and as investors, while encouraging them to see themselves as owners of the cooperative and members of a community of purpose.
The financial strength of the cooperative is only as important as the financial strength of its members. To survive the cooperative must maintain a clear social and economic purpose with the members’ interests first and foremost.
Gary Helou, then CEO, was part of a new management team brought into Murray Goulburn in 2011 to modernise and strengthen the cooperative’s leadership. However, his management style appears to have been more in keeping with that of a regular firm.
Recent revelations by Fairfax Media suggest that Helou and the senior management of Murray Goulburn had evidence of declining export sales as early as July last year. However, they continued to promise farmers a “guaranteed” high farmgate milk price and share price.
Although a capital restructure at Murray Goulburn was endorsed by the board it raised some concerns in the financial press and among former directors. The financial crisis that the cooperative has found itself in is something of a self-inflicted wound.
It has sought to “walk both sides of the street” with its ASX listing and overconfident pronouncements of keeping the farmgate milk price at around $6 per kg/MS.
Dairy farmers who are or once were members and shareholders have lost money. Many retired farmers who had their preference shares converted to the ASX listed ordinary shares have seen the value of their stock collapse. For their younger active counterparts the loss of share value is compounded by the lower milk price with many facing debts of A$100,000 to A$120,000.
Former CEO Gary Helou and former CFO Brad Hingle have departed Murray Goulburn leaving the cooperative’s board and Chairman Philip Tracy to face down angry farmers and shareholders, plus a class action led by legal firm Slater and Gordon.
Murray Goulburn’s members have been essentially turned from owners and members of a democratic community of purpose, into suppliers and investors whose share value is linked to the price of a litre of milk. That’s where the problem lies.
This is not necessarily the end of Murray Goulburn, however, they will need to regain the trust of their members and demonstrate that as a cooperative their primary focus is on the well-being of their farmer members.
As a business it must be frugal and focused on delivering its members the best prices at the lowest costs it can. Any investment and growth should be designed to provide its members with the best long term returns to their businesses at suppliers or buyers, not just to see the value of its share capital appreciate.
Of equal importance is the cooperative’s ability to keep its members loyal not just through the prices or dividends that it offers, but because they feel a sense of ownership and being part of a community of purpose that would be lost if the cooperative disappeared.