Murray Goulburn disaster delivers body blows to Dairy

By Brian Tessmann, QDO President

Last week’s announcement by Australia’s largest milk processor, Murry Goulburn (MG), of an expected 10 to 15% farm gate price decrease and the hasty departure of its Managing Director Gary Helou are body blows to the industry. Dairy is struggling under a shorter term European market surplus and the longer term market failures in the Australia’s domestic milk market.

The fallout means that MG Finance officer Brad Hingle and Director Gary Helou will leave the company after the 2015 / 16 Annual results. The two were the main drivers behind the Co-op’s partial float on the ASX last year. Results remain mixed with an expected net profit after tax of around $40 million, down from the February $63 million forecast and the earlier tip for $89 million profit after tax.

The company said while global dairy prices have continued to slide throughout the year it had kept the prices it paid to farmers unchanged. This contrasted to New Zealand where Global Dairy Giant Fonterra has responded to current global conditions by cutting the price to farmers. A Sydney Morning Herald article reported that senior MG executives including Gary Helou were reportedly paid incentives to keep the milk price high, a situation that proved unsustainable and burdened the unit trust with high debt levels. MG disclosed it would borrow up to $165million to pay higher farm gate prices this year alone with Mr Helou being eligible to receive a $946,400 incentive for doing so. There are no surprises in the calls for greater transparency.

With the very short term focus in the Australian milk processing and retailing sector in some might look for an opportunity to drop prices in the Northern Dairy Region. There is however a current and continuing undersupply of milk in Queensland. It must also be remembered that the booming world dairy markets of the past few years were never seen as a reason to significantly raise farm gate milk prices in Queensland, so it would seem both unfair and short sighted to seek to drop any prices now.