Farming is all about taking risks. Our businesses rise and fall largely on the backs of increasingly volatile international commodity price cycles, exchange rates and the weather. Plenty of really good farmers have come unstuck through no fault of their own, other than taking a good risk at a bad time.
On the other hand, our co-op, Murray Goulburn, has always been considered a pretty safe bet. It was formed more than 60 years ago by a group of Victorian dairy farmers seeking a better deal for their milk and has grown to become Australia’s third-largest food and beverage company – dwarfed only by Coca Cola Amatil and Lion.
Our managing director, Gary Helou, doesn’t want to stop there. At a supplier meeting this week, he spoke about the need to move at “break-neck speed” with new products to capture new markets within the next three to five years, swallowing competitors along the way.
They’re exciting times for this once risk-averse co-operative. The proposal being put to farmer shareholders is to list a chunk of the co-op on the ASX so that anyone can buy a piece of the action. Farmers with excess shares will be able to sell to non-farmers but these external investors, however, wouldn’t have voting rights.
Am I in favour? Yes, if the new capital structure can:
- Enshrine farmer control
- Maximise farmer profitability
- Treat all farmer shareholders equitably
- Allow the co-operative to provide great opportunities for new generations of farmers
Those are big “ifs” and there just isn’t enough detail yet to know whether any of them are satisfied. It is incredibly heartening though that the MG Board has listened to member concerns that the initial start date of the program of July 1 was far too soon to consider the complex implications of the proposal.
That’s the beauty of a co-operative: members have a real say in their own futures. And that’s why those of us who cherish it must have no fear of asking questions.
The Milk Maid Marian 
I would have concerns Marian. Two-tiered share structures generally have trouble when times are tough and the pressure then comes on to ‘simplify’ the equity structure and to make things ‘more liquid’. This inevitably counts against the foundation stock. Might take a decade or so but it will happen. And the spivs who dreamt up this nonsense wont care; they’ll be long gone.
It’s usually bulldust when they say they need these structures to raise money. Debt funding is quite cheap at the moment and a company with a strong balance sheet like MG would have no trouble raising money this way.
But hey, MG will have a truck-load of highly paid advisers saying the opposite to this, so they must be right 😉
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Hi Ian,
Plenty of MG co-op members have those concerns and I think they’re very worthwhile exploring.
The more I understand the proposal, the more questions spring to mind about how it will affect the future of the co-op.
Gary Helou told us on Wednesday that MG would certainly be able to raise the money via bank finance but said it would push the co-op uncomfortably close to its debt ceiling – leaving it exposed to downturns and unable to seize opportunities for acquisitions.
I can sense a hint of sarcasm about the advisors: I agree that big decisions like this one demand independent expert advice. Would be great to have an expert panel set up to tease out all the pros and cons.
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Good post Marian
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Sometimes I wonder why MG just doesn’t issue Dairy Bonds not dissimilar to what Fonterra has done on the Australian market and be done with it.
The overly complicated model being proposed just causes everyone headaches and issues and people start wondering what hidden agenda exists and then trust gets further degraded and MG increases its risk of supply loss.
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I suspect, Ian, that it thinks this will sell the proposal to supplier shareholders who are looking for a financial silver bullet. At any cost.
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