Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
Murray Goulburn last week announced it will close three plants as part of a financial restructuring.
Bonlac Supply Company, whose 1500 members supply milk to Fonterra in Australia, says it will contact disgruntled MG suppliers in the coming months.
Bonlac chairman Tony Marwood says while it is too late to talk to new suppliers for the next season starting June 1, it will be talking to MG suppliers in June-July.
“Farmers show their allegiance to milk companies by supplying local factories; MG is closing three factories leaving some suppliers without a local factory,” he told Dairy News.
MG will start closing the Edith Creek site in Tasmania and Rochester and Keiwa sites in northern Victoria in August this year; about 360 employees will be laid off.
MG says the closures will improve the future processing footprint by an annualised net gain of A$40 million to $A50m. MG expects to spend A$60m to enable the closures.
Marwood says the whole Australian dairy industry is facing challenging times and last week’s MG announcement is causing “further upheaval”.
He says farmers are waiting for milk companies to announce their opening price for the new season.
“It all depends on how the opening milk price looks; if the price is not competitive, farmers will continue to lose money.”
MG’s decision to close three factories is being welcomed by some farmer suppliers.
South-west Victorian dairy farmer and long-time Murray Goulburn supplier John Hateley says the decision to close three factories and cut costs might be disappointing for the areas but says it is logical for the cooperative.
“I had no doubt Koroit would stay but some of the facilities needed a lot of money spent on them to bring them up to scratch so it was a logical decision,” he says.
“They can do the products elsewhere and they’ve just got to contain costs.”
“I think they’ve turned the corner and are on the right path as long as they come out with a competitive opening price. I still like the cooperative model if it’s run properly.”
A Fonterra spokesman says it anticipated several of MG’s announcements. “And we’re working through what this means for our farmers and our Australian business.
“We are meeting with some members of the BSC board, as they are an important stakeholder in this, and we will provice an update as soon as we can.”
Rival’s overpayment botch-up hurts co-op
Fonterra faces forking out an extra A$60 million to its 1500 farmer suppliers in Australia this season.
This results from Australia’s largest processor, Murray Goulburn, scrapping its attempted clawback of A$183m in milk price ‘overpayments’ from farmers.
Bonlac Supply Company, which represents Fonterra milk suppliers in Australia, held talks with the co-op last week.
Bonlac chairman Tony Marwood told Dairy News it is “working through the issues” with Fonterra. “We can’t say more at this stage.”
Fonterra is legally obliged under a 2012 milk supply contract — the Bonlac supply-agency agreement — to match or better the farm milk price paid by Australia’s biggest dairy group and price setter, Murray Goulburn, at all times.
MG’s announcement last week effectively adjusts the average milk price the company paid its farmers for the 2015-16 financial year significantly upwards, from A$4.95/kgMS to A$5.53/kgMS. Fonterra’s milk price for the season is A$5.20/kgMS.
Murray Goulburn is being sued by the Australian Competition and Consumer Commission which alleges it misled farmers about the milk price it expected to pay them for the 2015-16 season.
It alleges that MG told farmers a final milk price of A$5.60/kgMS was the most likely outcome for the season, when that was not true.
