Worth saving?
Does Australian milk matter? We have to decide.
It seems two of Australia’s milk processors, United Dairy Power and Warrnambool Cheese and Butter, are about to be sold to China. Firms backed by the Chinese government are having unofficial talks that would put the price of WCB at a staggering $10 per share. Meanwhile, the ruthless but charming Canadians continue to acquire a bigger stake of WCB.
Here, close to home, another Chinese firm has already purchased a formerly decommissioned factory and is repackaging milk powder to send back to China. (It’s been a debacle, with outraged and distraught workers regularly featured in the local papers desperate to be paid.)
It’s not limited to the dairy processing sector, either. The Chinese have been buying up our breeding stock for years and now, they want our farms, as Brett Cole reports in the Business Spectator:
“For more than a year, China Investment Corporation has contemplated acquiring Van Diemen’s Land Co, which owns and operates 25 dairy farms with 30,000 dairy stock. Other Chinese companies have moved decisively amid concerns about their nation’s safety standards.”
All this while our Australian farmer co-op, currently the highest bidder for WCB, languishes in the competition tribunal as it ponders – for months – whether we are allowed to bid at all.
Do you care? If you’re a dairy farmer, hell yes, you should. No foreign company cares about your future like you do or your co-op does. Perhaps worse still, once these assets are sold, the fragmentation and inefficiency of our processing sector is locked in, forever limiting the price farmers are paid for our milk.
If you’re not a farmer but an Aussie, there’s an awful lot to be lost. These international companies and governments so keen to pay more than twice the value of WCB are not irrational. They want control of their food. Does that matter to you?
The Milk Maid Marian 
Here in the states Swift meat packing has been sold to a Chinese company. They process pork mostly but it just gives them a little more control over the food industry. Love your blog, keep up the good words and pictures of the beautiful cows.
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Thanks very much, Ellie!
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Serves wcb right if they are taken over by Chinese
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Not a fan of WCB then, Ian?
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Good old mg gets the blame once again for this mess mg can only pay the international price for milk. why is this the fault of mg? wcb floated their company and lost control of their destiny. mg has stepped in and is trying to clean up the mess. Still some aust farmers are happy to kick the only co-op in aust, mg, difficult to understand their logic. WCB board will have to stop kissing the Canadians and move over to the Chinese. Will they give David Lord a job in China perhaps?
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Well, you raise an interesting issue, Ian. As I understand it, the agreement the WCB board has signed with Saputo means that no matter how good a rival bid is, they must, by law, continue to support the Saputo one.
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Same here in the USA. China just bought the biggest pork firm in the world, Smithfield, which WAS a US company. Many foreign entities own a great deal of the dairy processing segment as well and it is really bad for farm gate prices.
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Yes, we are in the remarkable position of having the Canadians wanting to buy an Australian processor because our farmers are paid less for our milk than the Canadians, while the Chinese want our good reputation for high quality, safe dairy foods. We must be silly.
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I find it completely ridiculous that a local cooperative should be stuck in a tribunal whilst international competitors are almost free to come in and snap up Aussie producers with little or no resistance.
In a time where good security is becoming more and more concerning these acquisitions are following an alarming trend of Australian farms and companies becoming foreign owned. I’m all for competition but at what cost? Long term we could be looking at market shortages in Australia as the food produced here goes elsewhere with those owners free to dictate the prices. And it would be almost certain that those prices will not be the low (and in some cases unfairly low- that’s another story) prices that the Australian consumer has grown to know and love.
On a side note it would be a wonderful thought that as a young university student I would have an industry that I would have an industry that prides itself on being Australian owned and grown to return to, just a thought.
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Can’t you put up a petition on change.org ? I would sign it and pass it on to everyone I know
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I should have said Smithfield in my comment, too much Christmas has cluttered my thinking, I did mean Smithfield not Swift.
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🙂
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Can you copy this onto Ausdairyl Marian. We need as many people as we can thinking about the implications of this. Why cant farmers see that if there is so much interest in our milk there must be something we are going to miss out on by selling it. Farmers need a vehicle to use to get the benefits
back to them. Murray Goulburn is just a name. It is the vehicle farmers can use to capture profits. Its history is irrelevant its future is what matters. We can make it be the best it can be for you and me.
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Dear Roma m.g are the main problem the industry has no faith in its self
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Maybe if our local co.op had paid reasonable prices a few years back the dairy industry wouldn’t be in such a poor state ,it is time the co.op told the unionised workforce to get off there fat arses and get productive or we will sell to the Chinese that would stuff them
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Hi Bill,
The co-op certainly was bloated but I don’t think the workforce could be accused of being complacent now. The redundancies that were part of the $100 million in savings certainly captured the union’s attention.
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Bullshit they just shifted wage earners to salary ,so that cuts production costs , have a good look a financial report
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You’ll need to point me to the spot, Bill. Here’s media coverage of the union’s anger over the redundancies: http://www.standard.net.au/story/71544/union-slams-lack-of-consultation-over-mg-job-cuts/
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What a pity management haven’t taken the same cuts as the workers
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At least the pay of MG’s CEO is linked to the price farmers are paid. The pay of privately-owned processors is linked to maximising profit for shareholders and one of the biggest threat to that is, guess what, the price farmers are paid.
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And the bonus for Gary Helou in 2015 is tied into him achieving a milk price in the region of $6 kg m/s.
Below this seasons price and how much will input costs have increased for those emaining suppliers. 15% for power this month
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MG certainly isn’t going to be the industries saviour either. They have shown that they are consistently willing to set the floor price and not the ceiling.
Moves for partial floats of the co op will only move it further away from its current distant ideals of pretending to be a farmer controlled co op.
The only way for Australian farmers to protect our interests is to get behind the National Milk Pool that is trying to establish so as to ensure no matter who owns which processing facility the actual production and supply of food remains Australian farmer owned and controlled.
The support for MG is very misguided
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Hi Nigel,
I don’t think MG is perfect either but, unlike privately owned processors, everyone who supplies the co-op votes for who represents us on its board.
It’s healthy for the co-op to be questioned and held to account for sure and that’s what makes it different: we can hold it to account because it is ours, not the Chinese government’s or a billionaire’s money making machine.
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I think that we both know that although entitled to vote only a small percentage of suppliers actually do vote in which case those votes become the vote of the chairman of the boards to direct as he sees fit.
Not unlike the recent DA vote on how much to increase the compulsory levy payments I believe as little as three hundred people voted.
All this before you get to the fact that votes are proportionate to the amount of supply giving greater voting rights to certain sectors again not unlike DA.
MG steps away from one of the basic principles of being a Co-op by paying different suppliers a different price to each other.
All this before a look at the annual report to see the benefits to directors.
As far as being the suppliers Co-op that unfortunately went a long time ago.
This is why we need a National genuinely farmer owned milk pool
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I offer this submission in objection to Murray Goulburn Co- operative’s application to increase its shareholding in Warrnambool Cheese and Butter Pty Ltd.
To allow Murray Goulburn to increase its shareholding in Warrnambool Cheese and Butter I feel will not only be detrimental to the dairyfarmers of the region of South West Victoria but will also have an effect across the National interests of the Dairy industry.
Aside of Murray Goulburn’s desire to have a larger interest in the operation of Warrnambool Butter and Cheese (WCB) they are already a major player in the industry that is in a position to influence milk price received by farmers for their milk supply. To allow them to increase their stakeholding in WCB I believe will remove competition for milk supply further to the detriment of the dairyfarmer. Recent competition for milk supply in South East New South Wales by competing bidders for WCB, Murray Goulburn and Bega Cheese resulted in a reported increase in price received for suppliers in that region of around six cents per litre extra due to competitive forces. It has been made clear in public announcements that Murray Goulburn seeks to become the only dairy processor in Australia based on the Fonterra example in New Zealand. The attempt to increase its shareholding in WCB is a step to try and achieve this and by doing so will remove competition for supply.
While at present Murray Goulburn has a large supplier base there is a very polarised view among dairy farmers as to strong support and strong dislike of Murray Goulburn and many current suppliers of WCB have indicated that should Murray Goulburn be the successful bidder that they will take their milk supply to another company if at all possible depending on the ability of other processors to handle extra supply. Many existing Murray Goulburn suppliers are feeling this way also.
As part of the moves by Murray Goulburn to become the only dairy processor at this time some supplier meetings have been held in some regions of their supply base to propose a partial float of the company to raise capital for their growth. This raises a number of further concerns for the industry. In the first instance only a few of the supply regions have been involved in this process to date and early indications are that many of the current supplier base that have been strong supporters of the Co-op are also strongly opposed to this move and given the timing of this bid for WCB and the issues surrounding the growth of Murray Goulburn I feel that existing suppliers of Murray Goulburn and WCB are not in a position to adequately assess the implications of the deal and the prospects of Murray Goulburn as a suitable investor into the future. Furthermore this expansion plan has seen the proposal that volume of milk supplied will determine the shareholding required at a new price of $3 per share up from the current face value of $1 per share. By needing to raise capital in this manner to continue with the take overs and growth will ultimately not only put further pressure on existing suppliers to raise extra funds to meet these requirements but will also restrict those looking to enter the industry or grow within the industry. This will particularly affect young entrants to the industry something that is already of particular concern and will only exacerbate the problem by increasing the capital requirements and thus restricting trade. A flow on effect will be to those looking to exit the industry who will not be able to realise their assets to new entrants.
The projected growth of Murray Goulburn into the future sees Murray Goulburn in effect predicting a milk price in 2015 of approximately $6 per kilogram milk solids and have tied in a bonus payment to the CEO based on achieving this following the growth of the next few years. This before inflation will see a drop from this year’s milk price that is predicted to be at least $6.20 per kg milk solids with some companies predicting a final year price in the region of $7 per kg milk solids. Whilst there are varying opinions on what price is sustainable for the dairy farmers a cross section of consultants would suggest that for the farmers to operate properly and support the industry service providers that a price in the range of $6.80 to $7 per kg milk solids is required. If as we are led to believe world demand for dairy products is strong and growing competition for supply at farm gate level has the best chance of delivering a higher farm gate price which will in turn drive production. As in the past years milk returns in the region of $4.95 per kg milk solids have been paid in Victoria milk production has declined along with farm numbers. Figures for last year from Dairy Australia show that in Victoria alone 272 dairy farms ceased operations. National production is now below 9 billion litres down from close to 12 billion litres in around 2005. National dairy farm numbers have fallen from around twenty thousand in the eighties to now approximately six thousand seven hundred. Aside of climatic influences this decline has been principally driven by falling farm gate returns which saw particular falls post deregulation of the industry when processor’s gained more influence over determination of farm gate pricing.
Recently Murray Goulburn entered into a supply arrangement with Cole’s supermarkets for the supply of dairy products. This was for a ten year time frame something that the industry has not seen before. It is reported that Murray Goulburn undercut the previous contract holder by ten cents per litre on fresh milk sales from 78 cents per litre to 68 cents per litre. The flow on effects that have been immediate are that the companies who previously had contracts to supply liquid milk particularly have started to shed suppliers, reduced payments or in the case of some Queensland suppliers have been told that on the expiry of existing contracts at the end of June 2014 they will no longer be required and many of these farmers have no alternate supply options and will cease operations. It would appear that from events as mentioned above that at this point Murray Goulburn does not have the supply volume required to meet the contract arrangements with Cole’s and if they are to meet this supply they can and will pay a better farm gate price albeit in some regions only as was shown in the Bega region.
To allow Murray Goulburn to continue to increase its control over the industry will see a further reduction in competition for supply which will see farm gate returns continue to fall in real terms which will further lead to a decline in dairy farm numbers and production with disastrous effects on the service providers and rural communities that are supported by the industry. Dominance of the supermarket duopoly has been linked to adverse price pressure to producers and suppliers and to allow Murray Goulburn to place themselves in that position would have a similar impact particularly in light of their arrangement with one of the major supermarket’s Cole’s.
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Well put Nigel
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Thanks Bill
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There seems to be a common perception that the manufacturers and processors are there primarily to rip us off. The industry haters (and there seem to be a lot of people milking cows who are industry haters) believe that MG leads the charge in this crusade against milk producers. The noisy minority who look for others to blame for their particular predicament love to blame others, MG in particular.
The cooperative has one purpose – to maximise returns to its supplier shareholders. This is inescapable regardless of Rod Simms and the other nay-sayers. Are there problems with the model? Certainly and That is what Fonterra and others in Europe and the US have grappled with for decades Cooperatives have 2 sources of capital: debt and members. This can be limiting.
There was a report done a decade ago by an international consultant which described Australia’s rate of reinvestment in plant and technology post farm gate as inadequate and less than other dairy industries. This is one of the “rewards” we are now reaping with a higher cost of manufacturing compared to NZ, EU and US.
For $120 million, MG is investing in new, state of the art milk processing which can do it cheaper than Lion and Parmalat who haven’t invested in new technology. We are led to believe that the MG contract for home brand Coles milk is linked to international prices and MG believe they can make money for their supplier members. Why else would they do it???
Australia is a net dairy exporter therefore the bottom line for milk returns is dictated by the global market. Over the last decade a few things have happened. The EU and US have progressively reduced subsidies. As this happened, the farmers there drove down the cost of production. Coincidentally, farmers in NZ and Australia drove their cost of production up by intensifying, feeding grain and relying on bought in fodder etc The result is convergence towards a global cost of production. This has been explained in an XCheque Blog Marian referenced earlier and also by a couple of Rabobank reports and discussions. Further, in this environment, NZ has double production and Australia has stagnated. Attitude and confidence must play a big part here. In NZ, profits have been capitalised in to land and plant prices plus they have to buy supply shares… They don’t have it easy and have lots of debt. They have also thrived on lower payouts than we get (last decade XCheque analysis)
Both references also talk about the cost of manufacture. Scale does matter because larger, modern plants can process a tonne of milk more cheaply than smaller, older plants. Australia has lots of the latter. Our processing sector is cluttered with old plants and small operators.
As articulated in a joint ADFF, DRDC paper “Taking responsibility for the future” in 1999!!! fresh milk had become a commodity in EU and US and was predicted to do the same here. It took a while, but finally it came – yet the industry was surprised. We should not have been. We are not special, we are not martyrs for the cause, Milk from here is the same as milk from anywhere. So why does Saputo want WCB? We have relationships in Asia (Saputo doesn’t) and we have “Brand Australia” = clean, green, sustainable and SAFE FOOD. Saputo has regulation in Canada, but not in South America. What is to stop them from rebranding product from South America as WCB??? Same as Fonterra did Mainland – made from Australian and/or imported product!!!!!!
If we think we deserve a price higher than the global commodity price, that is fine but we won’t have an Australian dairy industry. NZ will land it on our door step for less. People forget Fonterra picked up Bonlac at firesale for our domestic market. They have just picked up a yoghurt co. in Tassie for basement price due to bankruptcy. They have form.
Competition is not well understood in this context. More branded trucks running up and down the road does nothing for competition. That is just MG plus a bit to get the milk my brand tanker wants. Fonterra tell us they provide competition, They provide MG plus 2.5 cents. Again, the 1999 report articulates this really well. At that point in time 85% of milk was controlled by Coops. People took the short view with the shiny new promises and the cash up front but forgot the long game (Dairy Farmers Coop – now Lion; WCB listing; Bega listing the list goes on). This is just history repeating itself with the shiny new thing called Saputo. Fonterra claim to have made great investment – especially in Tassie after decades of paying them the lowest price in Australia. What they didn’t actually tell us is how much NZ dairy product they brought in during the first decade after acquiring Bonlac after it was demolished from within.
Far too many issues here for a blog comment.
MG sets the price. Until MG run fast enough so the other companies can’t afford to pay dividends to their shareholders and buy milk as well, then they aren’t doing a good enough job. I reckon Gary will have to find another $100m to be in the hunt because of the following:
Company; 2013 Revenue; 2013 after tax profit ; Profit as % of Revenue
MG ; $2.385b ; $34.9m up from 14.5m ; 1.46%
WCB ; $496.5m ; $7.5m down from 15.2m ; 1.51%
Bega ; $1.01b ; $25.4m ; 2.51%
Until the others say in their Annual Reports what WCB said, paraphrasing: “profit was down because we had to pay too much for milk” then we need the cooperative to keep trying harder. If MG can pay 5c more than today then we are all better off and those getting MG plus are better off by the same amount.
The MG goal is to increase the price by $1/kg MS – FROM MANUFACTURING EFFICIENCY. This has been taken out of context. The statement is about the underlying cost of making product. The market fluctuations then sit on top of that. Saying a particular value is misrepresenting the MG goal.
Competition in the context of the Australian dairy industry is global, not local. If we aren’t competitive and with adequate scale to engender confidence in supply, then our customers will vote with their money and seek other suppliers. NZ, EU and US are and will continue to fill the gap. It is up to us as to whether we want to have a spot in that growing international market.
If the Australian dairy industry is in fact going to grow and prosper, then we need to take responsibility for our future. We need to create a prosperous, positive industry which people find enticing and rewarding. It required action on two fronts. Yes, we need the processing sector to invest so we have a globally competitive sector and we need our farmers to take up the many programs and technologies which can help lower the cost of production. In the past we’ve had a significant cost advantage, but we have lost that. We have to nurture a competitive advantage on the production side. A 300 plus cow dairy farm turns over about $1m. The culture needs to change to reflect this level of investment and management required. We can’t run around saying we are highly skilled business operators then bleat when things don’t quite go our way and look for others to blame. We must take responsibility for our businesses and our industry direction.
Tyran Jones
Dairy Farmer Gruyere, Yarra Valley
Vice President UDV
Director Gardiner Foundation
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I will try and reply to your comments in point form given the format of the discussion.
Processors are not there to rip us off but the directors are legally obliged to make every reasonable effort to make the company profitable. This is something that a co-op should be able to offer as an advantage over other companies via the ability for retained earnings to be put aside tax free to help protect returns to shareholders in downturns.I agree that in real terms we might try and blame the processors or supermarkets but ultimately as producers we let them get away with it and those that rely on representative bodies have to date been let down badly in this area.
I agree a true co-op should maximise returns to shareholders. Something that even given figures that you have quoted MG has failed to do in relation to other factory returns even though claiming that MG is more efficient than the others in regards to processing costs.
From figures I believe you stated recently at meetings in the western district farmers already have 80 to 90% of the capital invested in the milk processing yet bear 100% of the risk.
Given your name and location I assume that you are in some way related to former UDV president Ivan Jones. Perhaps if able you might ask him of the track that the then farmer owned co-op Bonlac foods took and the likeness to the current situation with MG. The co-op was growing with a corporate whizz kid as CEO the need to grow the company to create more efficiencies to compete on the global scene was the only path forward. Borrowings were increased milk prices, suffered Darnum was built as a white elephant and the added burden required the raising of outside capital as the poor returns to farmers could not be cut any further. And the rest as they say is history.
Based on Dairy Australia figures at the start of the year Australia now due to declining production only exports around 40% of the milk produced nationally with the remainder going for domestic consumption.
The drive for extra production has been driven by the information given by milk factories that more and more milk is required to help with efficiencies of throughput and when milk prices were sustainable this was achievable but as returns not only in real terms but also in terms of inflation have continued to decline we now see the current downward trend of National milk production declining from 12 billion litres pa to under 9 Bn litres and only continuing on that trend. Returns aren’t sustainable for around75% of farmers.
As far as external supply of commodities to Australia I agree this is a risk and one that if the UDV/VFF/NFF had any genuine relevance would be representing to the governments of the day to prevent instead of attending a couple of Liberal or National party dinners and thinking that they are the farmers mates.
The importation of product as you say to fill orders has occurred not only in the days of Bonlac but has also occurred in the time when I used to supply MG when due to poor returns to farmers they were unable to meet orders with Australian product and rather than paying more to Australian producers they took the option of sourcing NZ butter to fill the order.
The statement in regard to milk price was clear based on a price of $4.95 /kg ms. even to add a dollar to that is still well below the true cost of production to the majority of producers.
Perhaps as you touch on the discussion should relate to can the Australian dairy industry compete in the global market andreturn a sustainable price to farmers and if not perhaps rather than letting the industry shrivel to an agonising equilibrium of supply and demand the representative bodies should be negotiating a exit program for those effected farmers.
I also believe that if we are to save this great industry then we as farmers need to take responsibility for the supply element which is what we do well, produce milk by establishing a truly farmer owned co-op whose sole responsibility is to ensure sustainable returns from milk production on a National basis to remove the profit driven interests of the processors and duopoly from our problems.
As you said at the start all other options rely on someone else ensuring their profitability ahead of the farmer.
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Well said Tyran, I agree with everything you said, it is a big issue with so many points and where do you start, I will start with responding to some of the points Nigel made which I think need correcting.
The increase in milk price in SE NSW recently has come about because MG has entered this region which they were not previously operating in. Does this beg the question if MG had not come along, would the milk price have remained what it was? You need a certain level of competition in this industry but there is no shortage of it here in the south west (MG, WCB, UDP, Fonterra, Bega and a number of smaller operators), it is lack of efficiencies (transport, admin, plant utilisation, product mix) which limit our progress to seeing better farm gate prices.
MG has never said it wants to be the only milk processor in Australia, but said it wants to be a processor with scale and size to be able to compete successfully at a global level.
The MG capital structure review is not related to the WCB take over. This has been in discussions for a long time previous to the WCB bid. Meetings are proceeding to all regions to gauge supplier interest and feedback, and are only half way through getting around all MG supply regions. The meeting I went to at Koroit had positive support although having concerns (regarding entry, exit and risk). For the vote to get through it will have to have a 75% majority in favour, so it will have to be something supplier are comfortable with or it will not proceed, simple as that! Capital restructure is only in its early days, and nothing is yet set in stone.
I have not seen MG release a milk price prediction for next season yet, the volatility of international dairy prices and the Australian dollar, with six months to go before the new season starts, a predication at this point in time is very speculative.
Dairy farm numbers around the world have dropped, not just in Australia. Even with NZ’s increase in output, the number of farms have been dropping also as farms have got bigger over time.
The reports of the Coles-MG deal, of MG undercutting is completely untrue. This new deal has no set price but MG will receive a price made up of farm gate milk price plus processing cost plus profit margin. This is reviewed each year, but the profit margin component is fixed. This deal puts this milk into the added value bracket of products. As of a couple of months ago MG had signed up 132 million litres of supply from NSW and was still keen to take more. 100 million litres of this was needed for the Coles deal with the remainder to be used for Devondale products and milk brokering as required. Milk is already being picked up and brokered in NSW, so supply is secure.
In my opinion, a well run efficient, strong co-op has the best chances of maximising the return to the farm gate.
Craig Dettling
Dairy farmer in south western Victoria
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This from Barry Crumps on the Milk Maid Marian blog (see here) contains some very poignant comments here from someone else for the debate:
Murray Goulburn’s record borrowing and escalating debt
Question 1: Is Murray Goulburn in a better financial position since 2010/11
Answer: No in fact the situation has deteriorated significantly.
Reason: Borrowings (Annual Reports)
• 30 June 2011 $356 million
• 30 June 2012 $458 million
• 30 June 2013 $530 million
Total increased borrowing over the last two years $174 million
Current Projects (2012/13 Annual Report):
• $120 million state of the art milk processing plants in Sydney and Melbourne to supply Coles’ brand milk (Coles currently retailing at $1.00 per litre).
• $19.1 million UHT facility at Leongatha
• $5 million butter packing line at Koroit
• $5 million cheese cut and wrap facility at Cobram
Capital and leasing commitments 2013/14: Capital expenditure $157.5 million up 158% from $61 million, leasing $42.5 million up 20% from $35.4 million (Note 26, Annual Report 2012/13)
Increased borrowing $174 million (since 2011) plus capital commitment 2013/14 of $157.5 million = $331.5 million (not taking into account increased leasing costs) = $138,100 per MG farm (based on 2,400 farms) = record ever level of funding even without WCB.
New commitment: $533 million to buy Warrnambool Cheese & Butter (additional $222,100 per farm).
Question 2: How is MG’s record increased borrowing going to be funded?
Answer: Mainly bank finance offset mainly by lower milk price
Question 3: Does off loading $500 million to investors reduce debt?
Answer: Yes but it does not improve the cost of borrowing.
Reason: Investors require an incentive to invest based on an expected return on investment above the cost of bank finance.
Key Question 4: The true litmus test: If MG was a business or listed company would the banks fund MG’s increased borrowing with $500 million to be offset by capital raised from investors?
Answer: No way. MG’s balance sheet does not support it. (Ask your accountant)
Question 5: Then why are the banks, to quote MG so “comfortable about lending $533 million to buy Warrnambool Cheese & Butter”?
Answer: Banks love lending co-operatives money and the more the better.
Reason: It is a no risk and only a win situation for banks:
• Bank finance costs can always be recovered from lower milk prices to farmers.
• If the co-op looses competiveness on milk price and farmers leave to competitors then the banks make even more money from compound interest until the co-op is sold leaving little or nothing for the farmer shareholders.
This is exactly what happened Bonlac in 2003.
Question 6: What are other warning signs?
Answer: When valuable assets start being sold and leased back to “free up dead capital to invest in the future”. (e.g. a good example would be if MG starts selling and leasing back their warehouses and distribution centres.)
Selling assets to free up working capital and leasing back is exactly what happened to Bonlac during the late 1990’s. The Managing Director at the time called it “Investing in the future”
Remember, Bonlac’s Board enthusiastically supported the Managing Director’s “investing in the future” but it lead to excessive debt and finally the destruction and loss of a great farmer owned co-op, once bigger than Murray Goulburn.
Question 7: Is there a serious danger of seeing a repeat of Bonlac’s demise where the banks win and the farmers loose?
Answer: Potentially yes and that is why the above needs to be fully debated as debt can very quickly pass the point of no return. The recently suggested share value of $3.00 per share could end up being worth nothing.
Remember Bonlac farmers never had the opportunity to have this debate before it was too late.
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Thanks for the reminder, Nigel. I am looking forward to following up Barry’s questions. Stay tuned.
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Dear tyran why the hell hasn’t it why do other processors continually pay 2cents more tha MG
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Craig i will respond by saying that you comment that mg entering the scene in the bega region has increased competition and price. I agree that it has and as farmers that is what we need.
Gary Helou in some of his public statements via country hour etc has made it very clear that he sees mg in effect becoming in Australia what Fonterra is in NZ the milk processor basically.
Again via public announcements both mg and coles have stated that the milk price is set on a sliding scale up and down according to export commodity prices so even the current price is not secure.
Farm numbers have been dropping and in isolation your point of consolidation has some merit but so too has national milk production which negates the consolidation argument.
When a large percentage of farmers cannot make ends meet now imposing further cost via milk price to fund further growth of already under utilised stainless steel capacity is also flawed and unsustainable.
Again in public announcements surrounding the news of competition for milk in the bega region Gary Helou stated that they needed more milk before the start of the arrangements with coles started in 2014.
I agree that a co op is the only way to sustain milk price but it needs to be genuinely operated as a true co op for the equal benefit of all of its members and not merely a co op by name for the benefits that are afforded to a c o op such as tax free retained earnings
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Hey Marion,
You better add ACM as another company that the chinese will take over, they are already in partnership in building a processing factory in Shepparton.
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and possibly doing a deal with UDP in another factory also in Shepparton
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I didn’t read, all the comment, i’m french dairy farmer, and chinese company are also building milk powder factory for bb in France (in west part of France), the local coop name “sodiaal” bring and sell the milk to the chinese compâny….Chinese are everywhere !!!!!
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Thanks Vincent. Please forgive my ignorance: are there many farmer co-ops that process their own milk in France?
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Am i right in thinking that now, the Chinese are just buying the Diary Farms in the Western Districts outright (Walk in – walk out), perhaps facilitated by a Tasmanian Venture Capital company.
Then the Chinese are building their own processing plant.
So vertical integration from the land all the way to China.
I know or many Dairy Farms signed up under this agreement as we speak, just waiting for deposits to be paid.
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