An EGM for MG: who, what, where, when and how

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Understandably, there’s been a lot of angst among Murray Goulburn’s farmer-supplier-shareholders.

At the heart of debate in dairy circles has been a proposal for an extraordinary general meeting (EGM). But few MG suppliers feel sure of what an EGM really entails, especially since the massive changes to MG after the co-operative was partially listed last year.

I am grateful to  MG’s Executive General Manager Supplier Relations, Robert Poole, for answering some important questions for Milk Maid Marian.

Q: What’s needed to trigger an EGM at Murray Goulburn?
RP: Calling a General Meeting is a fundamental right of all supplier/shareholders. To call a General Meeting, supplier/shareholders require 5% of shareholder votes – as defined under our Constitution and in line with the Corporations Act. For any resolution to pass at such a meeting, a 50% vote of shareholders is required, unless it is a constitutional amendment which requires 75% support.

Q: Where are EGMs held and can they be shared electronically (eg: via video link) for those unable to attend?
RP: Murray Goulburn’s general meetings are normally held in Melbourne. Typically we don’t provide remote access to these meetings due to cost considerations.

Q: How long after an EGM is triggered must it be held?
RP: If shareholders with at least 5% of the votes that may be cast at the general meeting request that Murray Goulburn convene a general meeting, the meeting must be called within 21 days and must be held no later than 2 months after the request is given to the company.

Q: Who pays for an EGM called by supplier shareholders? What is an indicative cost?
RP: If shareholders with at least 5% of the votes that may be cast at the general meeting request that Murray Goulburn convene a general meeting, it is expected that the costs of the meeting would be borne by Murray Goulburn.  The cost varies depending on venue availability and number of attendees, so it is hard to define until closer to the event.

Q: What is the format of an EGM? Can questions be asked unannounced from the floor? Do resolutions need to be submitted in advance or can they be proposed from the floor on the day?
RP: It is expected that questions will be allowed from the floor.  However, any resolutions to be proposed at the meeting must be set out in the formal request given to Murray Goulburn to convene the general meeting. Effectively, this is to ensure that shareholders will know what business is to be dealt with at the meeting, and can decide whether to attend or not, or if they attend by proxy, they can instruct their proxy how to vote.

Q: For a resolution to pass, does the 50% vote of shareholders apply to those at the meeting or the entire shareholder group? What is the voting process on a resolution?
RP: An ordinary resolution must be passed by at least 50% of the votes cast by shareholders entitled to vote on the resolution. A special resolution (eg. for proposed changes to Murray Goulburn’s Constitution), generally must be passed by at least 75% of the votes cast by shareholders entitled to vote on the resolution.

At a general meeting, a resolution put to the vote must be decided on a show of hands (where each shareholder present who is entitled to vote has one vote), unless a poll is demanded (where each shareholder present shall have one vote for each ordinary share held). In the event that a poll is called, this means that all the vote will include the proxies received prior to the meeting as well as those voted on the day.

Declaration: Marian’s farm no longer supplies Murray Goulburn but she does hold non-voting shares in the unit trust.

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Plain English guide to the dairy concessional loans in Victoria

Victoria

Like just about everything else involving the dairy debacle, the facts surrounding the Commonwealth concessional loans for dairy farmers and their roll-out in Victoria has been clouded in confusion.
A big thank you to the office of Minister for Agriculture and Regional Development, Jaala Pulford, for answering Milk Maid Marian’s questions.

  1.        Who can apply?

The Commonwealth Government has indicated the loans will be available to farm businesses that supplied milk to Murray Goulburn and/or Fonterra in 2015-16. Evidence of a milk supply contract and/or statement in 2015-16  to Murray Goulburn and/ or Fonterra will be required to prove eligibility.  The Victorian Government has sought changes to eligibility requirements to enable suppliers of other processors to access the scheme. Changes have also been sought to ensure share farmers and young farmers can access loan arrangements. The Commonwealth has not made the requested changes.

  1.       $30 million is available while the Federal government is in caretaker mode. This won’t cover many farms. Why must the rest wait until after October?

The Commonwealth Government’s Dairy Support package includes $55 million in Dairy Recovery Concessional Loans until 31 October 2016.  The Commonwealth has offered loan amounts of $30 million to Victoria; $10 million to New South Wales; $10 million to Tasmania; $5 million to South Australia.

Victoria has sought advice from the Commonwealth on loans available after 31 October 2016 arguing that Victoria’s allocation of the total $550 million pool should reflect that 70% of Australian dairy farms are located here. The Commonwealth have not provided advice on future allocations.

  1.        How much can individual farmers access? Originally, media reported that half a farmer’s debt up to $1 million  could be borrowed but recent media reports indicate a cap of $200,000.

The Commonwealth Government has determined loan amounts will be up to 50 per cent of total eligible debt to a maximum of $1 million. Eligible debt means debt that has been established upon commercial interest rates, terms and conditions and/ or debt to a dairy processor.

  1.        What is the interest rate and is it fixed or variable?

The interest rate is variable and set by the Commonwealth Government.  As at 1 June 2016 the rate is 2.71 per cent.

The Commonwealth Government variable interest rate will be calculated based on the average of the daily 10 year Commonwealth bond rate over a specified six month period. The concessional interest rate will be reviewed and revised if necessary in accordance with material changes to the Commonwealth 10 year bond rate, where a material change is taken to be a movement of 10 basis points (0.1 per cent). The rate will be published on Rural Finance’s website.

Victoria has sought changes to the scheme so that farmers can access lower interest rates available under the Natural Disaster Relief and Recovery Concessional Loans scheme. This scheme provided rates of 1.67% to storm affected farmers in the Sunraysia in 2014. The Commonwealth has not made the requested changes.

  1.        What if banks hold land titles as security for loans and don’t want to relinquish it to Rural Finance?

Based on previous experience with other Commonwealth Government Concessional Loans scheme, this scenario is rare.

  1.        Many farmers are reluctant to apply for drought loans because the process and criteria are too difficult. Have you been able to make it simpler for farmers to apply for these concessional dairy loans? If so, how will they be different and are the criteria publicly available?

The Commonwealth Government determines the eligibility and requirements for the Dairy Recovery Concessional Loans. Victoria has sought a number of changes to improve eligibility criteria but the Commonwealth has not made the requested changes.

  1.        Minister Pulford quoted as saying only 70 farms will access the loans. What is the basis for that figure?

The estimate is based on the experience of other previous and current Commonwealth Government concessional loans schemes in Victoria. The figure assumes full subscription and the average loan amount of previous comparable schemes being around $450,000.

NOTE from Milk Maid Marian: At the time of writing, Rural Finance was taking registrations of interest for the concessional loans. Call 1800 260 425.

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What it means to me when you buy branded milk

Photo credit: ABC Rural

Every time you reach into the supermarket fridge and choose branded over unbranded, I say a little thank you.

Those pictures of empty supermarket shelves buoy my spirits – and those of so many farmers I know – during what is otherwise a crushing experience.

It’s impossible not to be moved by the support of friends and strangers alike. To know that people are doing what they can to help makes us feel less helpless, too.

You are the people who made dealing with our plight a political priority. You are the ones sending the message to supermarkets that milk has a value and that farmers do, too.

Thank you from all of us here on the farm.
– Wayne, Marian, Zoe and Alex

 

 

 

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Will the storm clouds clear?

With this week’s east coast low, the drought may be over but a new milk price drought seems set to linger, with some analysts even calling the downturn a “long term significant reset of dairy economics across the globe“.

I asked Rabobank senior analyst Michael Harvey for the bank’s take on what has caused prices to fall and what it will take to restore farmer fortunes. I’m grateful for his explanation below.

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Uncertainties have surfaced about the true shape of the global market and its medium-term proposition. Are there factors at play that will continue to plague the market and do we need to reset our interpretation?

This is where Rabobank can provide some independent insights. There have been some changes to the market which I will explore and this commodity crunch is what Rabobank defines as a super-cyclical caused by a number of events leading to a perfect storm:

•    The ‘floor’ price in the global market is weaker, and lower
•    The EU has removed a structural handbrake on milk supply – the rate of growth in Europe has surprised even us, and was the main reason we missed our original expectations for a price recovery!
•    There is a downshift in the speed of growth in the Chinese economy (and with it the world economy)
•    The slowdown of Chinese dairy demand growth (this occurred before the crash in prices)
•    The reduction in the prices of key commodities (and expectation that they will probably be lower in the medium term that we expected) which impacts feed prices
•    The end of the Chinese corn price support scheme
•    The failure of states in the Middle East

Political impacts on pricing
When gauging the global price floor, you need to look at intervention pricing systems.  A few years ago the United States industry removed its intervention system and replaced it with a margin protection program. The floor is already weaker because of this.

The EU still operates a public intervention system and its wholesale market is weak enough right now that product is moving into intervention stores quickly. The price in Europe is set in Euro per tonne. Shifts in currencies have seen the intervention fall US$500/tonne when converted to US dollars which means the global floor price is not only weaker but lower.

A removal of a 30-year milk quota system is no doubt structural adjustment. It was always going to lead to an uncomfortable period for the global market. However, global markets have simply been overwhelmed by the sheer volumes. A slowdown in Europe milk supply will be the biggest factor to help correct the ship.

In the first year without quotas, the EU produced 153 billion litres of milk in total. This was just shy of 4% more than the same corresponding period (or in other terms 5.5 billion litres). That’s a lot of extra milk.

The growth in milk supply growth across Europe has not been uniform. Twelve of the 28 EU members had 2% or less growth and the Dutch and Irish sectors have been responsible for 45% of the growth.

But the signs of a slowdown in overall EU milk production growth are emerging. It will take a few more months yet but, by late 2016, this growth should grind to a halt. Rapidly falling milk prices and poor weather will be key to supply correction.

Other factors will also be at play. For example, in the Netherlands the introduction of ‘phosphate rights’ will force Dutch dairy farmers to reduce herds. The pressure won’t kick in until next year when new rules are enforced but there will be a need to reduce herds.

The good news
Rabobank is confident the global market will turn around and this is within sight. There will be other supporting factors helping to rebalance the global market including:

•    Global supply growth outside of Europe – major exporters of dairy (Australia included) have seen lower farmgate prices and milk supply growth slow. But stocks do exist and need to be run down
•    Sluggish dairy demand – macro headwinds and weak consumer confidence linger in many economies; but are now being offset by retail price relief and increased dairy promotion
•    China’s well-documented ‘rebalance’ – China buyers have mostly worked through excess stocks and are likely to increase import volumes over the course of 2016
•    Oil prices – a recent rally signals the end of the global surplus. Oil prices will increase again – but remember this is a good thing (for dairy importers) and bad thing for dairy (production costs)
•    The cost of production for many dairy producers is lower right now due to cheap feed costs and a period of low fertilizer and interest rates

What about Russia – one of world’s largest importers of dairy? Russia’s trade ban is coming up for a two-year anniversary with no immediate end in sight. But Russia will eventually end the embargo.

Questions remain as to Russia’s long-term role in global markets. European cheese exporters may be cautious in rushing back in to this market. Meanwhile, Russia continues to build alternative supply chains – the success of this strategy is yet to be proven successful. Also, the collapse of the Russian economy means dairy demand and consumer purchasing power is weak irrespective of the trade ban.

Global pricing will get substantially better in the medium term
In Rabobank’s opinion there has not been any major shift in the medium-term fundamentals. The global market will present good opportunities to deliver profitable returns for Australia’s dairy sector – with the right export strategies. Here is our logic:

•    Demand growth is still expanding the quickest across the developing world, including Asia
•    These economies are net importers of dairy; and self-sufficiency will continue to be challenging going forward
•    The cost of producing in many of these regions is expensive. The case in point resides in China where the cost of producing good quality milk can be as high twice as expensive as in Australia. So there is an incentive to buy imported milk
•    Consumers in these markets also trust and prefer imported products which strengthens the trade opportunities
•    Australia and New Zealand will simply not supply all the milk these market needs. This means the global market needs more milk from Europe and the US in the medium term
•    Dairy producers in Europe and the US are structurally higher cost producers of milk than Australia.
•    Current global prices are not sustainable for any dairy producers anywhere in the world and simply need to improve.

Better times do still lay ahead. Weak global market conditions are at the core of the current problem but by early 2017 the global market will be in better balance. However, the market will remain volatile and under current pricing models dairy producers will continue to absorb this risk.

Hopefully trust along the supply chain can be restored, as the viability and sustainability of the sector remains healthy beyond the current crisis.

 

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Why I am not publishing cruel comments about animal cruelty

I am sending nasty comments about “cruel farmers” to the trash without a second thought at the moment. It is not good for the mental health of decent farmers under massive pressure for no fault of their own to read such messages.

If you’re preaching compassion for animals, first try applying compassion for your fellow human beings.

Here endeth the lesson.

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Who wants to sue who and who will pay?

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One of the first things farmers asked about the Murray Goulburn and Fonterra announcements was: “Can they really do this? Is it legal?”.

The lawyers have duly arrived.

I know of three firms circling Murray Goulburn right now. While Slater & Gordon was the first to announce it was opening an investigation into a class action against MG, it has not yet confirmed whether it will proceed.

Last week, a so-called “maverick” lawyer, Mark Elliott, reportedly filed a class action against MG on behalf of unit holders who had bought shares in the listed part of MG.

At the same time, another lawyer, David Burstyner of Adley Burstyner working together with Harwood Andrews, is building a list of farmers affected by the sudden milk price collapse who might be interested in one or more of the three legal strategies:

  • a “group claim” against a range of processors to recover financial loss;
  • steps to change and take back control of MG management, and;
  • an urgent court order stopping the claw back.

The big question on farmers’ lips is: if MG gets sued, won’t farmers ultimately pay the price?

The stakes are high because MG farmers face a double whammy:

  1. Now more than ever, farmers are acutely aware that when processors don’t do well, the answer is to slash the price paid to farmers.
  2. Every farmer who supplies milk to MG must own MG shares, so its falling share price is robbing many retirement nest eggs. Some are even facing margin calls on loans they took out to buy more shares.

The targets
The Elliott class action is targeting the MG unit trust and its directors. The good news is that the trust and directors should already have insurance that deals with such a claim.

There’s likely, however, to be an excess they will have to pay, which the lawyers call “deductibles”, which means the insured party has to cover part of the loss out of its own resources as “self insurance”.

On top of that, director’s insurance is no silver bullet. This type of insurance is complex and it’s quite possible that out of court settlements won’t be covered.

The proposed action from David Burstyner could target any of the processors who stepped down: MG, Fonterra, Lion and NDP. Mr Burstyner expects to know in the next few weeks. If launched, class actions usually play out over several years, so buckle yourselves in.

Will it help farmers?
Because there’s likely to be plenty of coverage of the Elliott class action for unit holders, I’m concentrating on the Adley Burstyner proposal for farmers and its potential impact on MG, the hybrid co-op.

Speaking with Milk Maid Marian on the weekend, Mr Burstyner said his firm is investigating an injunction to halt the milk price drops.

“An injunction is difficult to secure but the situation is urgent,” he said. “We are prepared to try if it is achievable, but it depends on what we learn from farmers”.

He also plans a “group claim” against processor(s) funded by a litigation funder, which roughly works on what some people call a no win no fee arrangement (see more at http://www.adleyburstyner.com.au/group-claim-faq). This arrangement minimises the risk to participating farmers but, as a guide, around 30% of the proceeds after costs is likely to go to funders. Mr Burstyner said the participation of thousands of farmers is necessary but that it’s possible because more than 3000 supply MG and Fonterra alone.

At the same time, Mr Burstyner said he hopes there will be no need for “all-out war” and that a class action could be avoided with the processors reaching a settlement with farmers that could also improve the way milk prices are set in future.

MG, however, is not a normal company. The fundamental ways it interacts with farmers must be put to co-op members and voted on rather than hastily negotiated on the court house steps.

But what if “all-out war” is the only option? Mr Burstyner acknowledged the possibility of short-term pain for the processor (which may carry through to its supplier shareholders) but the long-term benefit would be a “clean up” of the industry.

Asked why farmer shareholders could not simply reshape their co-operative by voting on special resolutions rather than litigation, Mr Burstyner strongly agreed that strategies along those lines could be very useful, saying, “Although MG is no longer the cooperative it was prior to July 2015, we would like to assist farmers with the solutions which could be possible in the newly formed corporatised structure, using farmers’ significant rights as shareholders which we think could really improve their position.”.

In notes he offered to Milk Maid Marian, Mr Burstyner clarified his point:

o    Murray Goulburn Co-operative Co Limited ACN 004 277 089 is an unlisted public company. It is controlled by its shareholders who for present purposes are the farmers. MG is no longer the same cooperative structure it was before July 2015.

o    Shareholders with more than 5% of votes can call a meeting or ask the company to call one.

o    They can sack the board and appoint alternatives by ordinary resolution.

o    There is a 2-month notice requirement for certain resolutions, for example, sacking board members.

o    The Company (under new management) may even be able to bring a claim against former Directors for not satisfying their director’s duties.

Mr Burstyner is keen to hear from farmers who would like to be kept updated on these three types of potential legal action (in the short term an injunction or challenging management, or the long term solution of a class action to recover financial loss and bring about systemic changes).

You can register your interest at http://www.adleyburstyner.com.au/farmers-farm-gate-milk-price-action.

Mr Burstyner stressed that he has no interest in any legal strategies if farmers don’t want them. Without interest from significant numbers of farmers, Adley Burstyner and Harwood Andrews will close their file.

Important: this post is general commentary only, please seek legal advice before considering any action.

 

 

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MG and Fonterra on how to prevent this happening again

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If there is a silver lining to the cloud over dairy farmers’ heads at the moment, I hope that it is change. So, with this in mind, I asked the two big processors at the heart of the storm, Murray Goulburn and Fonterra, to answer one simple question in 250 words or less:

“What needs to be done to make sure this never happens again?”

A big thank you to MG acting CEO David Mallinson and Fonterra Supply Manager, Matt Watt, for their answers below.

Murray Goulburn acting CEO, David Mallinson:

“Our co-operative structure remains fundamentally important because it enables us to act with a sole and unwavering purpose – paying the strongest farmgate milk price possible. Optimising milk intake to deliver the most profitable products rightly belongs at the heart of every decision we make.”

“In the short-to-medium term, we will remain susceptible to fluctuations in global commodity markets while our shift to value-add output continues. Rigorous planning is required to support suppliers during periods of downturn, given the intrinsic influence of commodity markets on the overall milk price.

“To ensure suppliers can sustainably manage their farm businesses, the Board is committed to providing clear farmgate milk pricing notifications across each season. We will implement a mechanism that provides regular and accurate full year forecast guidance but includes an opening price designed to absorb the sort of downturn seen in FY16. 

“The Board and management is united in its drive to ensure MG has the right strategy, executes it well and provides suppliers with consistent, reliable farmgate milk price notifications.”

Fonterra Australia General Manager, Australian Milk Supply, Matt Watt

There are a number of factors that have led to this “perfect storm” for dairy, so the answer is complex.”

“First and foremost, the industry needs a transparent milk price that is reflective of market realities. Farmers can manage their businesses through low prices and volatility, but only if they have timely, clear, and accurate information about milk price based on market signals so that they can make decisions to help manage volatility. Further, having a market-based milk price will facilitate innovation in pricing and risk management practices. For example a “one size fits all” pricing system, like those that our industry has seen in the past, may not be the best fit going forward. The industry needs to identify new ways to factor market volatility into price, to manage risk and bolster confidence during a downturn.

“In addition, we need to ensure:

  • A closer link between on-farm production and the realities of the market – our industry cannot continue to promote growth of the industry at a time when there is an oversupply of dairy globally. Our industry needs to listen to the market and adjust production to meet demand.
  • Improved efficiencies across the industry so that everyone can benefit – we need to find newer and greater ways of doing more with less, from the farm right through to the factory.”

 

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