Murray Goulburn - Forgive and Forget

By Brian Tessmann, QDO President

Many in the business community are puzzled about the forgiving commentary and suggested solutions presented in response to the Murray Goulburn’s (MG) and southern dairy industry problems. In the Financial Review, commentators Joe Aston and Bryce Corbett noted that MG chairman Phillip Tracy claimed former Managing Director Gary Helou was a visionary leader and simply tried to do too much too quickly.

The plan to take MG exports away from bulk commodities towards value added product was about all MG ever got right. This was the plan to get Devondale Brands more shelf space in exchange for supplying Coles with a decade of cheap private label drinking milk.

To produce the required volumes MG had to build two new processing plants $140 million in borrowings for construction. But even with the claimed manufacturing efficiencies, the profit margins on the Coles deal were non-existent. Worse still, the Devondale brands were a flop which Coles flogged off cheaply. This was exacerbated by the liquid milk production oversupply in Victoria and NSW created by the new factories. The bundle deal effectively pushed margin cross subsidisation from retailer to processor. Helou’s last chance was to sell an unrealistic amount of Devondale milk powder in China at an unrealistic yield right as the segments bubble burst.

Some have suggested the solution was to simply increase the retail price of milk making sure it went directly back to dairy farmers. This type of idea has often been put to the large retailers by QDO, but up until now it has received little outside support (Woolworths did however donate money to the flood appeal in 2011).

If the supermarkets put a segregated price rise on retail milk and pooled that new segregated amount in each state to support that states dairy farmers that would certainly help relieve the critical issue of a falling national milk production and subsequent loss of efficiency and markets. Alternatively, the large retailers could simply end the $1 per litre milk war and sell milk at a sustainable price.