Murray Goulburn's price challenge

15 Jun, 2017 09:43 AM
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MG had been a market leader for farmgate returns for the best part of three decades.
MG's immediate challenge is to provide a competitive milk price.
MG had been a market leader for farmgate returns for the best part of three decades.

An analysis of opening dairy farmgate prices by Australian Dairyfarmer reveals the extent to which Murray Goulburn has slipped as a market leader.

The analysis of opening prices for the past five years reveals the change.

The accompanying chart shows in 2013-14, 2014-15 and 2016-17 MG's price was at the top of the range and other prices clustered around it.

But in the past two years, MG's opening price has been at the bottom of the range and the other prices have shown marked variation.

The analysis also shows the opening price compared with the prevailing global price (GlobalDairyTrade auction average price) at the time of the announcement.

It reveals in 2015-16, the opening prices were well above the prevailing global price.

Meanwhile, Australian Dairy Farmers interim president Terry Richardson says MG's immediate challenge is to provide a competitive milk price.

If not addressed, the MG's low opening price was a risk to the company and to their farmers, Mr Richardson said in his weekly ADF Farmer Update.

"The news of Murray Goulburn's opening price and expected farmgate returns for the 2017-18 season has come as a severe disappointment to their farmers' suppliers and the industry," he said.

MG had been a market leader for farmgate returns for the best part of three decades.

"It now finds itself unable to come close to matching the milk prices offered by other companies," Mr Richardson said.

MG's announcement came at a time when their competitors had a growing demand for milk supplies, largely due to the positive movements in the world market and the confidence that farmgate prices would follow.

"Unfortunately, it appears the path Murray Goulburn has taken has left the company facing severe commercial challenges," Mr Richardson said.

Murray Goulburn's new management team and the board were clearly doing all they could to restore the fortunes of the company.

"The ongoing growth and profitability of the Australian dairy industry are attributed to the presence of strong cooperatives and we agree that this should continue, if possible," he said.

Mr Richardson said MG's low price would have a big impact on their farmers.

Almost a third of Victorian farmers, as well as suppliers in Tasmania and South Australia, would face another year of milk returns which are below their cost of production.

"There are no doubts the dairy crisis caused by the combination of low world market prices and last year’s unexpected price drops have impacted the outlook of many farmers as they consider their future," he said.

Milk production in Australia has fallen by more than 8 per cent in 2017 compared with last year.

A number of factors, including heavy culling of stock, contributed to this.

In many cases, this was in response to a need to cover costs.

"As a result of these events, confidence and loyalty to companies have taken a heavy toll," Mr Richardson said.

The value of trust and loyalty in any business relationship could not be underestimated.

"For the dairy industry, a strong relationship, based on the pillars of trust and commitment, has been an essential part of growth and investment," he said.

"Across a large part of the current dairy landscape, not only has trust and loyalty been compromised, but so too has confidence.

"We acknowledge the priority being given to restoring relationships, but we also acknowledge this will take some time to achieve.

"To ensure ongoing growth and profitability, there is agreement that our industry relies on all elements to operate effectively.

"Dairyfarmers need processors, processors need retail outlets and retail outlets need consumers."

Mr Richardson said farm businesses and the health and wellbeing of farmers and their families must be a priority for the industry.

"This can be achieved by continuing our commitment to deliver services and resources to assist farmers in their business decisions," he said.

"Competition for milk is strong and shows no signs of slowing down.

"Our industry needs to start growing so that we can be in a position to supply the markets available to us - both the Australian domestic market and those around the world."

Mr Richardson said ADF could not enter into the business decisions of companies and the business decisions of their suppliers.

But it could with in collaboration with our state dairyfarming organisations to seek solutions that would create the right environment for dairy companies to prosper and grow, along with a strong focus on dairyfarmers to grow their business and profits.

"Now, more than ever, the industry needs to remain focused and united in its goals to achieve a strong profitable future for dairyfarmers," he said.

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