UDV warning on MG sale delay

08 Feb, 2018 09:32 AM
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Adam Jenkins: MG wants clarity and an end to it as soon as possible.
If the Saputo deal falls through, MG will likely end up with the receivers and be split apart.
Adam Jenkins: MG wants clarity and an end to it as soon as possible.

Delay to the proposed sale of milk processor Murray Goulburn (MG) to Canadian dairy giant Saputo risked causing significant damage to Australia’s dairy industry, United Dairyfarmers of Victoria (UDV) president Adam Jenkins has warned.

His comments follow the industry co-operatives’ financial results made public on Wednesday, which includes a dramatic 30 per cent decline in milk intake for the first half of the financial year, compared with the same time last year. Milk supply had plummeted to 1.1 billion litres, attributed to an inability to pay a competitive milk price.

In a statement, MG said if the sale to Saputo did not proceed the co-operative would not be able to pay a competitive farmgate milk price.

“Further losses of milk flow may trigger an impairment to MG’s assets that could breach banking covenants and result in potential withdrawal of creditors’ support and an increased risk to MG’s ability to refinance its expiring debt facilities,” the statement said.

“The successful completion of the transaction remains a priority focus and MG will continue to work closely with Saputo to achieve completion as soon as possible.”

In October, MG announced the sale of its operating assets and operating liabilities to Canadian processor, Saputo, subject to approvals from the Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB).

The ACCC recently revised its date for the announcement of the outcome of its review to March 1, with the FIRB decision expected to follow.

In reaction to the milk supply struggles, Mr Jenkins said the board and shareholders faced tough decisions in pursuing the sale to Saputo.

“MG want clarity and an end to it as soon as possible,” Mr Jenkins said. “The risk of not doing something soon will have huge ramifications for the whole industry.”

He said if MG was to collapse under dwindling supply and revenue pressures, it would send “shockwaves” into global markets.

“When you have this uncertainty, they may want to look elsewhere, so we have to sort this out as quickly as possible,” Mr Jenkins said.

“Australia has great bio-security, a great product and great quality assurance system – people need our product.”

Several Victorian MG suppliers said they were not surprised by the half-yearly results.

Waaia’s Edan Cockerell said it was the same message farmers received at last year’s annual general meeting.

Along with many suppliers, Mr Cockerell believed if the Saputo deal did not succeed soon, MG could go bust.

“If the Saputo deal falls through, MG will likely end up with the receivers and be split apart,” Mr Cockerell said.

“This would no doubt see little money returned to suppliers sending more farmers to the wall – further fragmenting and destabilising Australian dairy.”

Woolsthorpe’s Joe McLaren, said he would be staying with MG “for now”.

“As a supplier to MG, we want the (Saputo) deal to go through, as quickly as possible,” Mr McLaren said.

He said at supplier meetings last year, the co-operative indicated it could be viable for “only 16-18 months”, if the sale did not take place.

And in the Western District, MG supplier Craig Dettling, Macarthur, agreed the news came as no surprise.

“If you go back and look at the last update, it’s all foreshadowed there,” Mr Dettling said.

“If anyone is saying it’s a big shock, they haven’t been paying attention to what’s being going on.”

He warned if a decision on the Saputo sale was not made soon, it could have a snowball effect with more milk leaving MG.

Mr Dettling said it appeared the co-operative had stemmed the milk supply losses.

Former longtime MG supplier, Kate Lamb, Denison, in Gippsland, said her family moved to Fonterra 18 months ago.

“They weren’t paying us enough so we got out,” Ms Lamb said.

“They expect farmers to stick by them, but we all have businesses. If we ran our business the way they ran theirs, we’d all be broke.”

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Andrew Miller

Andrew Miller

is a journalist for Stock and Land
Twitter: @journoandy26

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