Murray Goulburn, the series of events


THE fiasco that is Murray Goulburn had its beginnings years ago. Its seeds were set long before Gary Helou became chief executive officer.

The basis of a co-operative is equality amongst its members and that has been a sham for many years. The deregulation of the dairy industry some 15 years ago rid the industry in Victoria of contracts and freed up interstate trade, most importantly the Sydney fresh milk market. Murray Goulburn far from supplying Sydney milk from Victorian suppliers entered that market by contracting suppliers in New South Wales.

Our co-op chose to take over contracted suppliers in Sydney so southern milk supply and northern milk supply in the same co-op was born. The northern zone was immune from the MSSP. This year they were receiving 46 cents a litre, whilst southern farmers are living well below the poverty line. The anomaly of paying different farmers different amounts under the same co-op was now the norm. More changes followed.

A productivity incentive scheme became increasingly overstated. Large corporate farms, and large farmers owning multiple farms were significantly over paid to the detriment of the single-family farm. The very backbone of the cooperative was being sold out.

Another scheme was introduced to encourage "next gen" farmers. Young up and comers would get more than the older established farmer. This scheme would later be used by the cooperative to attract new suppliers to the co-op.

Some new suppliers now received more than the farmer who had supplied for many years. Murray Goulburn now opens its price "weighted average". Farmers believe they receive that amount, few do.

Enter Gary Helou. And the value added strategy. A strategy that was flawed from the start. The production of niche products sent into a highly competitive market place through the brand name "Devondale", a brand known for $1 a litre milk and "no name" cheese. This would be funded by creating, 500 million one dollar shares.

These new shares were listed on the stock market. This lead to the dilution in value in every other share. This listing on the stock market meant that the farmers now had two masters. The shareholders and the farmers themselves.

The value added strategy has been a disaster. Millions were spent on Edith Creek in Tasmania, now shutdown.

Millions were spent in Leongatha to gain access to larger gas supply while Maffra had it on tap. The second best gas supply in Victoria outside Sale.

Millions more were spent again in Keiwa, now no longer creating wholesale milk. Ninety million on cut and wrap laser technology at the Cobram cheese factory was meant to show huge dividends this year, it would be hard to find within a $380 million loss. Millions were spent last year trying to keep the milk price up to farmers, to hold confidence. They've blown the lot.

The co-op had attempted to take over successful co-ops, Warrnambool and Bega. Both had failed.

With Warrnambool they voted with their feet knowing the consequences for their local factory. The Leitchfield plant had been closed some years before.

Warrnambool knew what would happen to the ageing Warrnambool plant with Koroit just up the road. Supoto won the day. In the ultimate irony Suputo pays the highest farm gate milk price through its ageing facilities in Warrnambool.

While Koroit was the epicenter of the adult formula sachets that lost $60 million dollars that precipitated the near loss of the co-op, Murray Goulburn.

The world milk price collapse, adult formula, and a board that had given itself and its executives huge pay allowances manifested itself.

Gary Helou and his financial officer, Bradley Hingle, as well as numerous board members fell on their swords or were sacked.

The MSSP was set up to recoup its losses. A ridiculous scheme involving cutting the farmers' pay, charging for the losses while the company made a paper profit and paid its shareholders its dividends.

The co-op could have taken on this debt. The exodus from MG began and continues as the Co-op loses supply and shuts plants.

It is now in free fall. A domino effect, as we know it with 3.6 billion litres of milk, now diminished. As on August 15 this year it was down to two billion litres. Another wave hit on August 30, with another final wave on June 30 next year where contracted suppliers who bought over 60 percent of shareholding are now allowed to leave.

Perhaps there is no way out as it has begun selling its profitable enterprises and is only capable of paying its milk price with a $100million loan guarantee.

As it closes factories it risks alienating more suppliers. It cannot realize on its closed assets because someone will buy them and take more suppliers. The huge plants with limited input risk losing more and more money. The Maffra plant could be next.

Sadly it not need have happened. During the 70s a similar crisis hit MG.

Chairman, Bill Patterson, brought in Jack McGuire. He sat at Tinamba chain-smoking with a pile of keys in front of him, those of offices and of cars. He said as tossing them, "I'm only half way through haven't finished yet".

Together they turned the company around. The problem was the excesses of management and middle management not the struggling farmer. The profitable farmer was the most important thing to the coop.

Maffra plant is now under the pump with falling milk supply. Where a UHT plant should have been built and a value adding strategy would have worked, that could have involved the use of the Maffra name. It is known for milk.

The Macalister Irrigation District has supplied 100 per cent water right to every farmer, every year since 1927 except for one when they gave 80 percent.

It does this while supplying a pristine river system into a pristine lake system. It is quite frankly a marketer's dream and yet we cannot buy anything with a Maffra label on it, only from a small factory on Boggy Creek and the world cannot get enough of it.

Murray Goulburn had the ability through its numerous factories that source milk from separate regions. It could market niche products from each. It was the only company in Australia that could do it. As it closes factories its chances diminish.

Many farmers have only left in desperation for two years of losses were enough. When MG opened 60 cent below its competitors on 'weighted average', conditional on holding supply at 2.5 billion litres, its chief executive proudly acclaimed that farmers would "break even" this year. A multi-million dollar paid executive telling farmers they should be happy with break even after two years of losses.

Meetings were organized for only the elite farmers. For the first time the average farmer was not allowed at a supplier meeting.

The catastrophe of what is Murray Goulburn had its seeds set in inequality.

Gippsland Senior
More coming soon!!!