“Bring on the cows” trumpets The Australian, headlining a story about MG Co-op managing director, Gary Helou. In response to rumours that the co-op might purchase a large Tasmanian dairy farm, Mr Helou reportedly says:
“We are not farmers; MG is a global dairy food processing and milk company, and we will not be buying farms directly; that is not our business,” Helou says adamantly.
“The only way to get extra cows and milk is to up the farm gate price enough that farmers will want to invest (in more cows) themselves. So that’s what I have set out to do, maximise the farm gate price and reduce the cost of processing and the supply chain and then efficient production will follow.”
Here’s the problem: MG is not a global dairy food processing and milk company. It is a co-operative of Australian dairy farmers who are members because they expect MG to, first and foremost, maximise their profitability. Not by investing in a processor (they could just buy ASX shares if that was what it was all about) but by looking after farmers directly.
They don’t just supply MG, it’s not just their MG, farmers ARE MG.
Am I being hopelessly idealistic? I don’t think so. This focus on being a processor has flowed through to the co-operative’s milk price system.
The final milk price only tells half the story. The quoted “average weighted” milk price is skewed to favour farms with flat production curves (mirroring those of the processor) at the cost of farms whose milk supply matches the natural ebb and flow of cow and pasture. For the vast majority of Australian dairy farmers, the way our co-operative pays us is at odds with efficient milk production.
MG must remember what being a cooperative really means before its farmers will be ready to “bring on the cows”.
The Milk Maid Marian 
Marian, I think we all agree with the idea. MG want to grow the company and raise farmgate value. That is nearly exactly what we are trying to do here in NSW except that we want to grow the industry. The question is around how. The MG idea of attracting private equity capital seems good but the reality is external investors are duty bound to hold the farmers away from any extra value. If not well managed they can become another gatekeeper and ticket clipper that doesn’t add value.We think in NSW at least, we need investors whose interests and values align with the goal to raise farmgate value and grow production into new and exciting export markets.
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From everything I read in the press, Dairy Connect is doing some exciting things in NSW, Mike. I’d like to know more!
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Good luck, Marian, keeping the co-operative working in the farmers’ best interest.
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It seems to be the same situation – businesses and governments and now MG. This change in attitude to what they are there for. It seems that everything is about making a profit for the business and its top guns – and if they are lucky – its shareholders; but loyalty and a fair go for everyone along the chain, as well as a fair price to their customers all seem secondary to their goal. Admittedly I know nothing about dairy farms and their milk prices but am trying to learn (thanks Marian) but it seems to me that milk is one of our cheaper commodities. (I must say I’ve NEVER taken advantage of the $1 milk cartons – that seems to be throat-cutting at its crudest and downright cruelty to our valued friends running farms.)
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Thanks for your support, Kaye!
I think the bottom line is that if we don’t see fair milk prices, the cost must be extracted somewhere along the line – whether that’s the way we treat the land, our animals or our families.
The co-op is meant to be owned by farmers for farmers to help us get a price that reflects the true cost of milk so we can farm more sustainably.
Sadly, I think we’re at risk of losing our way.
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Marian,
An interesting article, you always succeed in bringing good debatable topics to the table. Perhaps you should go into marketing or comms. for a dairy processor. 🙂
I have to agree with Mike Logan’s comment about the natural segregation of investor interests and supplier interests and never the twain shall meet…in current business models.
Like reality, the commercial world is a cruel and demanding place and sharing and being fair doesn’t fit very well with the psyche necessary for entities required to return a profit.
However there are newer business models that support greater value chain integration and participation in performance optimisation to secure improved profitability, market share and both supplier / investor security. MG is sitting on the edge of this and its dated processing facilities provide the opportunity window to address it but they seem hell-bent on spending capital on catching up and refreshing plants which doesn’t position them well for the future other than to compete against the larger operators with more of the same. It is a shame as they could move beyond this limited thinking and become a great Australian agricultural business able to out-compete not only their current peers but also those they aspire to assimilate. The changes are deep and start at the farm and reach right through the value chain to the end consumer touch-points, both domestically and internationally.
It is disheartening to constantly see them crash into the media with outdated, single minded, past industry type thinking that will ultimately see their demise whilst other smaller more nimble operators will loom large and win suppliers and clients off them as a result.
Just to add to this debate let me offer that Fonterra is at the top of its game and its future is either going to be re-invent themselves, again, for future proofing or be in a continual position of defending itself against up-comers. they did it successfully 10 years ago and may well do it again. Sadly the southern hemisphere does not have the financial horsepower of R&D in dairy, and other agriculture for that matter, that the northern hemisphere counterparts have but we do have four others things that the northern counterparts sometimes lack – ingenuity, tenacity, proximity to a large export market and resilience. Leverage these with R&D results from the northern hemisphere, some good old sovereign investment and a smarter more collaborative VI type business model and we could “bring home the bacon” rather than “bring on the cows” for more of the same old same old.
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Goodness, that is a tough assessment Ian. The one thing MG cannot be accused of at the moment is sitting still. I agree with you though that we farmer shareholders have seen little in the way of alternatives to the current proposal. Perhaps you should go into strategy for a dairy processor ;).
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