A Mexican standoff as the sun sets on MG

MGDevondale

The sale of MG to Saputo is formalised tomorrow. I’m so pleased for shareholders who feared losing the entirety of their nest eggs that some certainty is restored.

Even so, I’m very sorry to see the loss of the last southern Australian pacemaker co-op. Our farm may have fled MG during the Gary Helou hurricane but until then, it had always been a co-op farm, even before MG made it to our part of Gippsland.

The co-op’s mission was always to maintain the balance of power for farmers in an industry where, typically, each small family business supplies a highly perishable commodity to just one multinational customer. And for that multinational, our milk price represents the single greatest cost.

Should we be alarmed?

Well, tomorrow, we enter the wild west of farmgate milk pricing with something of a Mexican standoff.

You see, under the terms of the now infamous Bonlac agreement, Fonterra is obliged to match or better the price the leading processor pays its farmer suppliers. And, er, that leading processor now appears to be Fonterra itself for most of this season, only to be overtaken by Saputo with its purchase of MG.

At the same time, outgoing MG boss Ari Mervis says Saputo has, “committed for at least the next five years to pay a competitive milk price which is no less than the greater of the price WCB pays its suppliers and the final weighted average Farmgate Milk Price published by the two largest processors in the relevant region.”.

In most regions the two largest processors will be MG/Saputo and Fonterra. In effect, they’re promising, when it comes to farmgate pricing, they will match or beat themselves and each other.

What a mess. While we have the attention of policy makers, farmers must ignore the advice to focus purely on what we can control inside the farm gate. After all, that’s what lost us the co-op in the first place.

It’s high time farmers turned our attention to how farmgate prices will be set once the milk shortage supporting competition is no more.

 

 

One thought on “A Mexican standoff as the sun sets on MG

  1. Another excellent article Marian. As an outsider it appears to me it’s the end result of dairy farmers being initially “convinced” that changing MG from a cooperative to a company was a great move.

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