Tag Archives: Theo Spierings

ACCC takes Helou, Hingle and MG to court but lets Fonterra off the hook

eleanor-roosevelt

Pic credit: The Solution News at TSNnews.com

Today, the ACCC announced that it is taking Murray Goulburn to the Federal Court for unconscionable conduct. It will also pursue MG’s former MD, Gary Helou, and CFO, Brad Hingle.

That’s a bit of a relief after Gary Helou told the Senate Inquiry in February that he had not been questioned by investigators. If there’s a villain in the whole dairy disaster we can all agree on, it is Gary Helou. I, for one, am glad he will have his day in court.

I am also relieved the ACCC has shown the wisdom of Job when dealing with MG. As the ACCC said in its statement:

“The ACCC has decided not to seek a pecuniary penalty against Murray Goulburn because, as a co-operative, any penalty imposed could directly impact on the affected farmers.”

On the other hand, many farmers will be disappointed the ACCC has chosen not to take any action against Fonterra. The watchdog explained that decision in a quote from ACCC chairman, Rod Sims:

“A major consideration for the ACCC in deciding not to take action was that Fonterra was more transparent about the risks and potential for a reduction in the farmgate milk price from quite early in the season,” Mr Sims said.

Rod Sims is right. Fonterra did say, more than once and from early on in the season, that the milk price was unsustainably high. Why, I was one of the farmers upset with Fonterra big banana, Theo Spierings, for broadcasting this via the newspapers eight months before the price collapse. That much, I do understand and, with the benefit of hindsight, Fonterra was doing the right thing.

Theo

Fonterra was in an impossible position. While, technically, Fonterra could have cut its price earlier and, therefore, less savagely, the reality was that it had little choice. It would have haemorrhaged supply to MG and, if the co-op had delivered on its promises, the Bonlac Supply Agreement would have forced Fonterra to match MG’s price – no matter how unrealistic – anyway.

What it does not excuse, however, is the way Fonterra responded once MG announced its price cut.

At first, Fonterra sat on its hands, apparently caught by surprise like the rest of us. Then announced a slashing of the milk price from $5.60 to $1.91kg MS – the equivalent to 14 or 15 cents per litre. It gave no notice – actually, it revised the price for May and June on May 5. There was no time for farmers to plan and we were all faced with a frenzy of late-night nightmarish decision making.

On top of that, the Fonterra response failed to consider the devastating effect it would have on farmers with autumn-calving herds. Fonterra moved the goalposts a week later to spread the pain more evenly across its farmer suppliers but, for those who’d been most responsive, it was too late. Cows had been culled and the decision to send milkers to market is absolutely final.

Even now, farmers who chose not to accept the low-interest loans Fonterra offered to partially fill the void are still paying a mandatory levy to fund the scheme.

The weeks of insanity in May and the pain it continues to wreak on farmers cost Fonterra Australia loyalty that took it decades to build, as Australian GM of Milk Supply, Matt Watt acknowledged in this excerpt of an email to suppliers just minutes ago:

  • “You will have seen today that the ACCC released its findings into their investigation into MG and Fonterra over last season’s step down. The ACCC advised that they have decided not to take action against Fonterra.”

  • “I know the last 12 months have been incredibly challenging for you and your families, your communities and our industry.

  • “We’ve listened to you, and we’ve learned a lot over the past year. What you’ve told us has informed the steps we’re taking to ensure a stronger dairy industry.

  • “As you know, we’re working with BSC Board on greater transparency on price and as mentioned earlier I look forward to sharing more on that at the upcoming cluster meetings. We’re also fully engaged in the Dairy Industry Code of Conduct.

  • “We understand it will take time to rebuild confidence, and this is something we are firmly committed to.”

Neither of the two big Australian processors covered themselves in glory a year ago.  At least we now have some prospect of justice, if not recompense, for all the farmers affected by the reckless behaviour of the man at MG’s helm that sent so many to the rocks.

It’s a sign – a good sign – that the dairy community will chart a better course and keep a closer watch in the years to come.

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Filed under Farm, Fonterra, milk price, Murray Goulburn

Fonterra’s Judith Swales explains Theo’s thoughts on Aussie dairy farmers

Theo Spierings Fonterra chief executive Theo Spierings. Photo: Pat Scala, Sydney Morning Herald

Fonterra is one of the world’s biggest dairy companies with a glittering history. A cooperative in New Zealand, Fonterra is also Australia’s second-largest processor.

Just last year, Fonterra delivered a stellar Kiwi farmgate price far better than anything ever enjoyed by Aussie dairy farmers. Analysts enjoyed debating why Australia could not emulate its success. Today, the co-op is under intense scrutiny from its shareholders.

As I mentioned in the previous post, farmers in New Zealand are doing it very tough this year and Fonterra Australia chalked up losses last year.

Then, last week, Fonterra’s chief executive Theo Spierings​, was quoted in the Sydney Morning Herald  in a story headlined Aussie farmers being overpaid amid global dairy rout, says Fonterra boss.

After quoting Mr Spierings as saying the current price of $5.60kg MS could not be supported, the Sydney Morning Herald reported:

Mr Spierings said the method on how Australian farmers were paid needed to change so it wasn’t based just on the farm-gate price and matched other processors.

“It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” he said.

“But we need to have the conversation now about what the endgame looks like. What is the value being created – what’s the size of the cake? Then we need to have a good debate with farmers … about how are we going to share – how are we going to cut the cake?

The comments raised a lot of questions for a Fonterra Australia supplier like me, especially in respect to the “Bonlac Agreement”, which extends until 2019 and commits Fonterra to paying its Australian suppliers a price that equals or betters the dominant processor.

I put some of those questions to Fonterra Australia and am grateful to managing director, Judith Swales, for answering them.

Judith Swales, Fonterra Australia managing director. Pic source: Australian Dairy Farmer

MMM: Why has Theo chosen to telegraph a change in Fonterra’s dealings with Australian farmers via the media rather than by opening a conversation with farmers?
JS: Theo was commenting on the global dairy situation and its impacts for Australia. He was putting a voice to issues that many in the industry are well aware of. These are difficult issues and shouldn’t be shied away from, and as an industry we need to address them.

MMM: Are there any inaccuracies in the article you would like to correct?
JS: The headline was unfortunate. The main issue to point out is that the problem is not around Australians dairy farmers being overpaid – as stated in the headline – but rather the impact global volatility is having on the sustainability of current dairy pricing in Australia. What’s important, is that we’re sending the right price signals to our farmers to avoid any surprises and so that they can budget for various scenarios.

MMM: Theo appears to cast doubt on the Bonlac agreement that ensures farmgate prices match or better the dominant competitor. Will Fonterra honour that agreement this year?
JS: We remain fully committed to honouring the Bonlac agreement. We are focussed on giving our farmers line of sight to the price we can pay this year as quickly and accurately as we can. The price we pay this year must be sustainable. We do not want to sacrifice investment in our long term strategy, which aims to deliver returns above the Benchmark price, in response to short term, tactical pricing pressures.

MMM: Does Fonterra remain committed to the Bonlac agreement in the medium to long term?
JS: We view the BSC Milk Supply Agreement as a baseline. We always strive to aspire to more – whether it be with our SupportCrew services, price risk management tools or our suppliers receiving the highest milk price (as found in an independent report by Ian Gibb for the 2013/14 season). We expect our relationship with our suppliers to continue to evolve over time.

MMM: “It’s loyalty and skin in the game that can lead to an upside. You can call it a dividend, or whatever, a bonus per kilogram milk solids,” says Theo. Does this mean special pricing that favours long-term contracts and large farms?
JS: Achieving a mechanism for determining milk price that drives behaviours that support the success of Fonterra’s strategy for all suppliers is our aim. This work is always evolving and we will continue work with BSC on this.

MMM: Farmers who supply milk to Fonterra Australia are suppliers rather than shareholders. What does Theo mean by “sharing the cake”?
JS: We have always said that the best dairy industry model is the one where everyone can get a sustainable return. Farmers need to be able to make money, processors need to make money and so do customers, like retailers. And that’s what he means by sharing the cake.

MMM: Does Fonterra continue to have a long term commitment to Australia?

JS: Absolutely we are committed long term to Australia; and our Board continues to voice this commitment. Australia is one of our four key strategic markets for Fonterra. It is a key plank to our global multi-hub strategy, which complements our Retail and Foodservice business. We continue to invest: we are progressing our Beingmate partnership; we have plans to rebuild our cheese plant in Stanhope; and only this week we commissioned a multi-million dollar Beverages plant in Cobden.

Thank you very much, Judith Swales!

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Filed under Dairy Products, Farm, Fonterra