CANBERRA: The Murray Goulburn board meets in Melbourne on Thursday to set farmgate prices for the next financial year, with a starting price likely to be about $4.80 a litre. This price, already set by Warrnambool Cheese & Butter, is at the low end of the present range between $4.75 and $5.25 a litre. At least one other large producer could come out early in the week, which will also help set the market price.
MG accounts for 37 per cent of Australia’s nine-billion-litre milk production and dominates Victoria, Australia’s major producer. This means it tends to set the farmgate price paid by other producers.
If a processor pays below the MG price it runs the risk of not being able to get supply. But, right now, the behemoth is also the irrational player in the market because it has excess stock that it is trying to sell at any price. This includes products ranging from milk powder to UHT to cream cheese landing cheaply in Japan.
The co-op is in the process of trying to find a new boss and any writedowns may well await that appointment. The MG implosion aside, the industry is progressing quite well with production down just 1 per cent over the past year and exports showing stronger growth than those from New Zealand.
According to figures published by Fonterra yesterday, overall exports were up 6 per cent in the past 12 months, double the New Zealand rate, and ahead of the US, which fell 6 per cent, but behind Europe, which rose 11 per cent. The strong sales from Europe, with the Russian market closed, helps explain why prices have slumped globally with powder now selling at $US2000 a tonne, down from $US5000 a tonne in March 2013. Still, Australian fresh dairy exports are up 21 per cent over the past year and cheese by 13 per cent.
Prices normally rise as the year progresses. However, for only the second time since deregulation in 2000 MG cut the price it pays farmers in late April from $5.60 a kilogram — just days after former boss Gary Helou had flagged the prospect of $6 prices. Fonterra, which is bound by a 2003 contract with its main supplier Bonlac, slashed its price down to $1.91 to bring the year average down to $5 a kilogram.
The New Zealand giant is trying to change that contract. The ACCC is investigating both companies to see if there is a case for misleading and deceptive statements and unconscionable conduct. It is still in the process of collecting material in the inquiry that is focused on whether MG, which raised public funds for the first time in 2014, misled farmers. Some argue the $5.60 price was the key to the listed company because dividends were linked to the farmgate price. The stock closed yesterday at $1.18, down from $2.56 at the end of last year.
Fonterra had long argued the Australian prices were unsustainably high due to the collapse in global prices. The MG meeting next week comes after Fonterra has just promoted Australian boss Judith Swales as part of a management refresh. She will be in charge of strategy as well as the local operations. This is despite the Australian arm recording losses totalling over $200 million in the past two years.
Swales was boss of HJ Heinz Australia before starting at Fonterra in 2013 and sits on the Dulux board. She previously ran the local Goodyear and Angus and Robertson franchises. At Heinz one of her tasks was to shut local manufacturing and to move the operation to New Zealand.
