Lactalis in front to acquire Fonterra’s Australian dairy assets after ACCC clearance
The world's largest dairy company may be in pole position to acquire Fonterra's Australian assets.
However, Fonterra, which was also under investigation, has escaped court action.
Australian competition watchdog Australian Competition and Consumer Commission (ACCC) says it has instituted proceedings in the Federal Court against MG.
It alleges that MG engaged in “unconscionable conduct and made false or misleading representations in contravention of the Australian Consumer Law”; former MG managing director Gary Helou and former chief financial officer Bradley Hingle were knowingly concerned in the company’s conduct, it says.
The allegations relate to representations made by Murray Goulburn to its Southern Milk Region dairy farmers between June 2015 and April 2016 about the average farmgate milk price (FMP) it expected to pay them during financial year 2015-16 (FY16), says ACCC chairman Rod Sims.
“The ACCC alleges that Murray Goulburn’s conduct had an adverse impact on many farmers who, as a result of Murray Goulburn’s representations regarding the farmgate milk price, had made business decisions.”
“The farmers relied on Murray Goulburn’s representations and were not expecting a substantial reduction in the farmgate milk price, particularly so close to the end of the season when it was not possible for them to practically readjust their expenditure,” Sims says.
The ACCC alleges that from June 2015 until February 2016, Murray Goulburn misled farmers by representing that it had a reasonable basis for setting and maintaining an opening farmgate milk price (FMP) of A$5.60’kgMS and a forecast final FMP of A$6.05/kgMS, and that it considered the forecast final FMP of A$6.05/kgMS was the most likely outcome for FY16, when that was not in fact the case.
Further, the ACCC alleges that from February 2016 until April 2016, Murray Goulburn misled farmers by representing it had a reasonable basis for expecting to be able to maintain its opening FMP of A$5.60/kgMS for the remainder of the season, and that it considered a Final FMP of $5.60/kgMS was the most likely outcome for FY16, when that was not in fact the case.
The ACCC alleges that, in all the circumstances, Murray Goulburn’s conduct towards farmers was unconscionable. These circumstances include that Murray Goulburn:
• knew that farmers relied on information about the opening FMP and forecast Final FMP to make significant business decisions during the financial year;
• was aware that many farmers were unable to easily switch milk processors, particularly those contracted to Murray Goulburn;
• created an expectation that the opening FMP would be set conservatively and would be a minimum price, and that the final FMP would be higher than the opening price;
• knew that farmers expected that it would update the forecast Final FMP regularly to reflect material changes; and
• provided and maintained FMP forecasts despite knowing that these forecasts were overstated and unachievable in FY16 and that farmers were making decisions in reliance on these forecasts.
“Many farmers are in a relatively vulnerable trading position, and rely on transparent pricing information in order to budget effectively and make informed business decisions. In these circumstances, farmers were entitled to expect Murray Goulburn to have a reasonable basis for determining its pricing, and to regularly update farmers if there was any change in forecast prices,” Sims says.
The ACCC is seeking orders against Murray Goulburn that include declarations, compliance program orders, corrective notices and costs. The ACCC has decided not to seek a pecuniary penalty against Murray Goulburn because, as a co-operative, any penalty imposed could directly impact on the affected farmers. The ACCC is seeking declarations, pecuniary penalties, disqualification orders and costs against Mr Helou and Mr Hingle.
The ACCC says separately, after careful consideration, it decided not to take any further action against Fonterra Australia in relation to the step-down of its FMP, announced one week after Murray Goulburn’s revised Final FMP in April 2016.
“A major consideration for the ACCC in deciding not to take action was that Fonterra was more transparent about the risks and potential for a reduction in the farmgate milk price from quite early in the season,” Sims says.
