Me (whispering): “You need brain surgery”
You: “Huh?”
Me (a little louder but still almost inaudibly): “You need brain surgery. Tomorrow.”
You: “Wha…why?”
Me (with great confidence): “Because I am a brain surgeon and it will make you better in every way.”
You: “What do you mean?”
Me: “Look, if you keep on like that, you’ll never get anywhere.”
You: “What is this surgery?”
Me: “I haven’t yet decided on the details but I am a surgeon and you would do well to respect my expertise. In any case, I will have finalised the details by tomorrow. If you have any more questions, you’ll have ample opportunity to ask them on the way to theatre. Thank you for your interest and attending this consultation.”
Our co-op, MG, is rushing onwards with a “capital raising project” that would forever change it from being 100% farmer-owned to “farmer-controlled”. It’s one of the biggest changes in the co-op’s history.
It might well be wonderful but what’s certain is that the ramifications are complex. It’ll take time for us to:
- understand why we really need to raise half a billion dollars of external capital
- understand the proposal
- tease out the pros and cons
- consider the alternatives and
- debate it.
Our Kiwi counterparts took five years to make such an important decision about their co-op. We seem hell-bent on doing it in weeks. Why?
The Milk Maid Marian 
I remember our co-op merging with a bigger co-op. We were lonely voices in the wilderness urging caution. Years later most of the farms that made the move are out of business. The majority of the rest have moved to other cooperatives. Milk marketing is complex and new ideas bear careful scrutiny….as you already know. Best wishes getting through this.
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Thanks for letting me know about your experience, threecollie. I’m glad you survived. As Australia’s last remaining co-op of any size, MG plays a critical role in my farm’s survival. We can’t afford to let group-think make big decisions like this.
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Marian,
Nice opening and my response is but I don’t need brain surgery I already had a lobotomy back in 2000 when the brain surgeon from Canberra was on duty.
Murray Goulburn (as a farmer co-operative) is trying to replicate the transition New Zealand (as a nation) went through with the New Zealand Dairy Board (NZDB) and the various domestic co-operatives, I agree. But there are fundamental differences between MG and New Zealand outside of having government backing, consolidation of legislation and a granting of assets alignment into the NZDB to become Fonterra Group. Let me highlight in the next paragraph some of them.
These differences are that the largest NZ co-ops were merged with the New Zealand Dairy Board and that was already one of the largest dairy marketing authorities in the world, which opened export markets immediately providing a ready market for greater scale of production. Fonterra Group as it is today exports over 60% of its dairy product as powders after extensive refurbishment and production realignment at both Clandeboyne and Edendale – not an insignificant exercise in itself. It has taken nearly a decade for many farm conversions from sheep/beef to dairy including irrigation to support the increased milk demand and that cost to the various farming communities was substantial. There is another story in here about Scales Corporation and Allan Hubbard and the loss of approximately $NZD1.8Bn but it is for another time.
MG has neither the collective power of multiple co-ops for aggregate milk collection, handling and processing nor the ready made export agreements to fulfil and the current Australian economic climate and appetite has shown there is little chance this support will be granted. We know the ACCC prefers a fractured domestic industry and the Australian FTA’s and bi-lateral agreements are not conducive to wholesale increase of dairy export. There is also the TPP (Trans-Pacific Partnership) which will impede Australia’s independence in pursuing Asian markets in competition with the Americas (USA, Canada, Mexico and Chile), this falls in favour of Saputo (WCB) and Bega (Fonterra) more than MG.
So that aside does MG need to go down some form of transformational path? Yes, my view is it is imperative and is even perhaps a bit late. But what, when and how needs to be done with much greater care than would have been needed up to 10 years ago due to todays fractured and largely offshore owned domestic dairy processing industry, the lack of government support, the lack of export presence from “dairy produced in Australia” and Murray Goulburn not even being in the top 30 dairy providers on the international stage.
An important driver for MG to grow is so it can survive and continue to compete domestically. Lion uses a substantial volume milk for cheese production from both WCB (Canadian owned with Lion retaining 10%) and UDP (soon to be Vietnamese owned) as well as Bega having a strategic partner in Fonterra Group and Burra Foods having a Japanese alignment. These parties (lets also include Parmalat, now part of Lactalis) all have substantially deeper pockets and greater corporate horsepower than MG at this point and that is a risk for MG. There are a few domestic acquisitions open to them to support both growth and for production of value-added products for export, but not many and to compete with the heavy weights on their own ground is a big move. Maybe taking a presence in New Zealand would be easier that trying to grow here, there at least two opportunities open to them right now.
However MG is in both a unique and privileged position as the only remaining dairy co-operative of size but it is also at risk by nature of the choices open to it. I hope for you and your fellow Murray Goulburn shareholders that the Board and Executive Team have done their diligence with depth, put sufficient de rigeur into their planning and exercised a complete and robust risk assessment and sensitivity analysis to fully understand the consequences of what they are proposing to doing.
I absolutely applaud what Murray Goulburn are trying to do including changing the current co-operative structure to a hybrid co-operative. My greatest fear is they may be over-complicating it and then the subsequent execution of it. Their shareholders and milk suppliers, as you have indicated, fear they aren’t exactly clear and communicative about what and how they intend doing whatever it is they intend doing and this loses trust and respect and ultimately your support. $500m is a lot but it would be worse if it was to become $50m in a short space of time as has happened in many other agri-sectors where the strategy or timing was wrong.
If you want someone to read through and assess what they have provided you, as a shareholder, then you know how to contact me. The cost to you? A glass of fresh milk, maybe two…
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Thanks Ian,
I may well take you up on that…later. The problem is that I have nothing whatsoever to show you. MG has not provided anything in writing at all. We are expecting a written proposal in March. Unless the board hears that we shareholders are uncomfortable with the speed of this project, we will be expected to vote on it in May, to allow implementation on July 1. This post declares to the world that at least one such shareholder is deeply uncomfortable.
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Marian,
I spent a few hours wandering around the Murray Goulburn website to see what I could find. I was amused, entertained, delighted and yet horrified.
I was amused by the pictures and “feel the love” anecdotes. I assume they don’t actually pay someone to do this. Farmers blogs do this so much better or at best leave it in the Devondale web portal and keep it out of the Murray Goulburn one.
I was amuse to also see a high presence of ex-Sunrice executives there as well as many suspects from various well known companies in the agri-business. Know the past provides insight as to the risk of the future.
I was entertained by the generic data about the domestic dairy industry with cursory data around export, factually correct it was but all available from Dairy Australia with better analytics and insight. Perhaps best left to Dairy Australia and provide links. Save MG money, time and effort.
I was delighted to see an improvement in their governance structure, publication of some of the governance framework and disclosure processes.
I was horrified to see how much work is still to be done in this area however at least someone in MG is attempting to redress what was a large gap. They would not even get 50% of way to meet ASC listing obligations in their current condition. There are some very important shareholder related matters that are just simply absent.
I was horrified to not be able to download the annual results due to a “technical glitch”. So I can’t comment on those but will say they need to think about and do something about their “online platforms” for compliance, reporting, informing, engaging, interacting and trading activities.
I was horrified to see absolutely no information or material other than a couple of very rhetorical and condescending paragraphs about their “strategy”. It is worse than bland, it verges on offensive to a thinking person as it treats them as someone with pre-school capacity.
I was horrified to see the quarterly communique lacked any real substance about their intent, their long term plans, the shifting markets, and the “connection” between farmers (their current shareholders) and themselves. Not to mention it is one of those “come and get it if you can find it” sort of articles.
I was horrified to see no outline of what they are thinking in terms of a proposed restructure. It does not need to be detailed but it does need to have the process they are about to go through. If they provided a series of briefing documents on what is being considered they could make this online for secured access by shareholders only.
I was horrified to see they have a strategy and corporate development strategy team but not material forthcoming from this area, at all. I have to assume both roles are of a volunteer part time nature otherwise the expectations would be substantially higher.
I was horrified to see they had a corporate project management office AND Capital projects team and again no material or reference or details forthcoming. This team is going to be responsible for managing the execution of whatever the Strategy and Corporate development team come up with as a result of the Board’s proposed restructure and capital raising efforts.
So when you do get some details please keep me posted but I would suggest the areas above are the ones you need to target for greater engagement and transparency in the interim, possibly directly or through the Shareholder Relations team.
Kind regards
Ian
P.S. In regards their capital raising do NOT let them raise capital the same way Elders did (ASX ‘ELDPA’) or by issuing Class A or B shares (includes voting rights) on the ASX. Let them propose industry bonds or the similar instrument that Fonterra has used in Australia as this will keep control within the farming community whilst allowing the institutional investment and retail communities to participate in their growth plans but not lose control. Also there presence as investors will assist in driving a higher degree of governance and shareholder transparency.
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Sadly Marian this type of attitude at the top is endemic in the Australian dairy industry.
A patronising hubris from the bureaucrats that they know what’s best for farmers and that farmers are on a needs to know only basis and it appears in this case the farmers don’t need to know or do anything but have blind faith .
Maybe one day, though I am beginning to doubt it, they will recognise knowledge and genuine transparency is empowering and real success comes to those who take the team with them
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Thanks for your comment, Lynne.
Two board members have responded to my pleas for more time. One said the hybridisation of the co-op is no real biggie.
The other said the board would delay the vote if shareholders told it they were uncomfortable with the timing.
This is a test for Australia’s dairy community: it’s up to us to keep the leadership of OUR co-op accountable.
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2 reason for capital raising
1 for long term expansion PLANNED
2 PANIC because your business is not performing
You choose Which 1 with MG
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Hi Bill,
I know lots of people are skeptical. I think they have big plans to invest the money (rather than simply pumping it into cashflow) but we do have a right to know what those plans are.
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Of coarse we do . This is what scares me and other mushrooms the speed of it and lack of transparency , why have the board waited so long to update factories , haven’t they been doing this , why do they keep buying the wrong equipment in these factories and having to modify it spending our money and then seeing it not work a l a’ packaging plant purchased for for mg cobram which took 5 months to work and now going to get new machine from overseas because this 1 won’t do job who gets sacked for this multi million dollar fuck up no one the bloke gets a promotion ?
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Murray Goulburn has floated the concept at supplier meetings which are held in your local town. They have also held a round well publicised meetings to discuss capital raising with suppliers. Have you been to any of these?
I too am concerened with the time frame and the implications of our farmer owned co-op having external shareholders. But I can also see the need for external capital. Milk processors around the world are facing the need for more capital, this is an issue not unique to MG.
As shareholders in MG we must keep asking questions in a positive way. There are many people in our industry who have vested interests in muck racking and spreading miss truths about MG. It is our responsability as suppliers to engage with our co-ops management and attend supplier meetings. If this is such a big issue it is worth the 4hrs it will take to attend one of these meetings. It is difficult to have an informed discussion if we don’t have the right information.
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You’re right on so many counts, Graeme, especially that it is difficult to have an informed discussion if we don’t have enough information.
But I disagree on a couple. First, it is not my duty to attend meetings. It is the co-op’s duty to provide detailed, readily accessible information in written form with enough time for members to appreciate the implications of voting “yes”. It is mid-February and, still, there is nothing in writing. A written proposal in March followed by a vote in May is not adequate.
Second, if you can find a way to slow this process by asking positive questions, please do so – but hurry. I am not muck-raking and the only vested interest I have in this is in the survival and prosperity of our last big dairy co-op.
Directors tell me the vote will only be delayed if shareholders show they are concerned about the timing. And that’s precisely what I am doing.
It’s such a shame that MG has propelled its supporters into a position where we are forced to speak out publicly about its management conduct in a bid to protect it.
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The other thing I’d add is that the meetings, even by MG’s own admission, are still only offering the most basic outline. The detail is still evolving! Again, it gets back to the timing.
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Marion, You are on the money with your analogy. Last year MG spent a lot of time & money with Boston Consulting engaging with suppliers regarding the milk pricing review. The “Share” meetings I have attended , with one senior manager, Local directors & a banker have given sketchy outline details, changing as we go along, No one taking notes. A decade ago Australia had 3 Big Co-ops, one got sold up for big $$$ the other went pear shaped, MG is not too big to fail if mismanaged. Need Accountability !
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Thanks for your comment, Charles. In order to cherish the co-op, we need to question it. I only hope management understands that many who question it do so because they want it to flourish.
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Policy on the RUN
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I hope your fears are not realised, Bill, and that MG is just getting carried away with the excitement of its growth plans. I’m so pleased that we’re on a path towards revitalisation but want to know more well before it’s time to make such important decisions.
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Hi I have around 3 decades of experience with co-operatives. First of all CBH members successfully held off the corporate raiders around 12 months ago. You should contact the CBH board for their take on the situation. Secondly the members need to demand that they be fully
informed of all the relevant options – not just one – it must include a no change option – have a look at the NRMA case for members rights to be fully informed.
Its always important to be wary of merchant banks – they charge significant success fees for getting these types of proposals over the line. Are they being paid simply for the work they do or are they paid on the success of the capital raising? I also agree with the earlier comment on A and B shares – they create a serious disconnection between people who are still farming and those who have exited the industry. MG needs to be about the future of dairy farmers not just as an investment vehicle for non dairy industry investors to make a return out of the dairy industry at the expense of on farm returns.
your co-operative be careful merchant banks are out to make fees not to act in the best interests of themembersiinfromed
inof
informed of all
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Ptolemy,
Good point, I had not gone into that area in this forum but have commented on CBH, as a successful co-op in other forums (www.businessspectator.com.au).
Perhaps the shareholders of MG need to seek out shareholders of CBH that don’t hold an office (i.e. director or executive) rather than the CBH Board. But either way a very worthy engagement nonetheless.
I agree that if MG Board is not independent enough, strong enough and absolutely clear on its intent when it engages the likes of merchant bankers, industry advisors, private equity firms, strategic partners etc. for advice, transformational assistance, M&A integration or capital raising then they may very well fall under the powerful heady spell of lucrative times ahead by those same parties that only seek transaction and advisory fees and everyone associated with MG loses.
I just hope for the sake of the current shareholders (farmers) that the capital funding raising is not for something as mind numbing, naive and stupid as buying OUTRIGHT Peters Ice Cream from a Private Equity Fund for more than what they paid for It a couple of years ago with some horrible, horrible legacy and commercial hooks in it. Unless there is something latent in Peters that MG can seriously leverage across its entire operation. There are far smarter options to get control of Peter Ice Cream if part of the MG strategy is to get further into iced dairy, but who knows what MG’s strategy is – do they? To summarise this one – to buy outright a company from a private equity firm in a heated market would be paying twice the premium of the intrinsic value – subject of course to the ACCC’s blessed consent, again.
I have offered assistance and guidance (I use this term very loosely as she really needs little guidance) to Marian and others, and will continue to do so whilst I can, for free. Would you be prepared to offer the same?
Ian Macallan
macallan@bigpond.net.au
0419 504 – 255
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An interesting article to read is “looting the mutuals” by Dr Race Matthews. it is about who the change is really designed to benefit and it aint usually the shareholder. Be wary of false profits.
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Agreed JH, although haven’t read ‘looting the mutuals’.
As a Fonterra supplying shareholder, I believe that deregulation of Dairy Board and formation of Fonterra was as much about undermining farmers cooperative strength, as it was about streamlining and increasing efficiency. The inter-generational co-op capital as a result of deregulation was distributed to current generation of Fonterra suppliers which contributed to land inflation, and in conjunction with regulation from the Commerce Commission and pandering to trading partners (competitors), caused a destabilising pressure on Fonterra, which resulted in the board and current ‘lucky’ generation farmer shareholders pushing for and accepting external investment and shareholding in the form of a hybridized cooperative (new generation cooperative).
Do you know of examples of hybridized cooperatives that faithfully serve supplying shareholders? Once the co-op is hybridised financial regulation displaces co-op principles and values, resulting in less transparency and information sharing to the supplying shareholder.
In NZ our meat industry is disjointed, the net result being farmers aren’t profitable enough to maintain a sustainable business. There is no strong healthy cooperative structure involved in processing and marketing. Why would investor owned processors (external investors) want to share more value than they need to farmer suppliers?
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Marian,
Where have you gone ? I have had no posts since 14 February. Perhaps you are busy on the farm. Hope all is well
Libby Lambert
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Sorry, just flat out!
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And much of the above are the reason that we need to form a truly farmer owned and controlled National Milk Pool and not blindly follow our current path that has clearly shown that MG pretends to be the farmers Co-op but will blindly go on its own way in the same manner that Bonlac did years ago as they know that the majority of supplier/shareholders wont become actively involved and that the chairman will by default gain control of those votes to do with as he chooses.All that before we get to the biased position of large shareholders who stand to gain the most having larger voting blocks due to share numbers. One farm should equal one vote. In that scenario Dairy Australia would no longer exist. Find the answers to how many farmers actually voted in the deregulation and Dairy Australia ballots and you will soon see that any claims of the vote reflecting the views of dairyfarmers are a farce
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