Current and former suppliers to both companies expressed their shock and dismay at the sudden price drop last April and the claw-back introduced by Murray Goulburn.
The submissions followed a hearing in Perth in which former Murray Goulburn managing director Gary Helou defended his actions in cutting the milk price and pointed to ‘‘extraordinary events in China’’ in April.
Mr Helou said he had not been contacted by industry regulators investigating the issue, prompting a remark from UDV president Adam Jenkins that he had ‘‘fallen off my chair’’ when he heard that.
Mr Helou was challenged as to why 48 hours before the cuts were announced he told a food forum that $6 was an attainable price.
‘‘I didn’t say that. I said the $6 is an aspiration number, is a target number,’’ he said.
Mr Helou said he believed $6 was attainable even during the commodity downturn if companies had the right business model in multiple markets.
He blamed changes in Chinese regulations for the company having to cut prices.
‘‘There were extraordinary, external deregulation events in China in early April 2016.’’
Murray Goulburn blamed an unfavourable change in the exchange rate, lower than expected adult milk powder sales in China and a devaluation of its milk supplies.
At the Shepparton hearing, the witnesses were questioned about whether a floor price should be introduced for milk, whether the industry should have some sort of re-regulation and whether they were fairly treated in their milk supply contracts.
One witness described how he had left Murray Goulburn when he compared outcomes for his farm, and another two outlined how they wanted to leave the same company but were bound by contract to stay.
Chairman Chris Ketter said the issues raised in several hearings ranged through unethical management, contracts, low-priced supermarket milk, the impact of last year’s price drop and collective bargaining.
‘‘I think it’s a wake-up call for the industry,’’ Senator Ketter said.
‘‘Australia is virtually the only deregulated dairy market in the world, and most of the producers around the world operate in a monopolistic or regulated market.’’
Supplier wants to see Fronterra invesitgated
Fonterra supplier Bridget Goulding said in both cases of sudden price drops, she had attended supplier cluster meetings and was assured the price stood at the promised year-end level.
‘‘Only weeks before the May claw-back I attended a meeting at Numurkah and was confirmed by staff members present that we were looking at $5.60/kg milk solids by the end of June,’’ Mrs Goulding told last week’s Senate inquiry into the dairy industry.
‘‘This was a time when final winter fodder requirements were being locked in along with purchases of water for last of the season and for carry-over.’’
Mrs Goulding complained of the extreme price drop just to match Murray Goulburn.
She wanted an investigation into Fonterra’s performance over the last 10 years, referring also to the price drop in 2009.
Referring to Fonterra’s last profit, Mrs Goulding said Fonterra took the opportunity to get suppliers to foot the bill for a windfall to shareholders and to recoup money for losses over the past decade.
‘‘Fonterra must not be allowed to take over or become a major shareholder of Murray Goulburn.’’
Mrs Goulding, who is the social issues secretary for Baulkamaugh CWA, said the generosity shown to farmers had been heart-warming.
‘‘Lions groups, community houses, CFA, St Vinnies, Doing it for Dairy, the Northern Victorian Rural Financial Assistance Group and other non-profit organisations have taken Murray Goulburn and Fonterra suppliers under their care to get through the dreadful mess that has occurred.’’
She said the lack of milk supply later in 2016 was caused by massive cow culls brought about by the claw-back by Fonterra and Murray Goulburn’s lack of planning and reactive management styles.
Mrs Goulding praised Bega Cheese chairman Barry Irvin for standing up publicly and criticising the price cuts.
She said she was concerned that speaking out may have repercussions for her.
Inquiry chairman Chris Ketter said the inquiry was protected by parliamentary privilege which prevented any other party from taking action against the witnesses.
What they said:
‘‘I really feel that a litre of milk should be worth more than the cost of a postage stamp.’’
Farmer Lionel Harneiss
‘‘Fonterra were not having the problems that Murray Goulburn were having. They saw an opportunity to make some money andthey took it.’’
Strathmerton farmer Bridget Goulding
‘‘I am highly distressed not only at seeing that trust from other companies has been broken but that breach of trust has extended across the industry.’’
Bega Cheese managing director Barry Irvin
‘‘The days of supplying a company for years and years has changed. Businesses will go where the best return is for their farm.’’
Lockington farmer Paul Weller
‘‘Everyone is pretty disgusted with the actions of Murray Goulburn and Fonterra.’’
Dingee farmer Ben Govett
‘‘The advocacy bodies should be looking at the pitfalls associated with these types of contracts. I would have thought that was a fundamental role of an advocacy group.’’
Senate inquiry chairman Chris Ketter
Dairy farmers can’t say goodbye
One farming couple complained to the Senate inquiry into the dairy industry that Murray Goulburn would not release them from a milk supply contract.
Another supplier explained to the Shepparton hearing last week why he had switched companies.
Rennae and Ben McInnes from Gunbower told the inquiry they would be about $15000 better off if they could move to another processor.
‘‘We would never have signed the contract if we had known what was going on,’’ Ms McInnes told the inquiry, when explaining how the price crash had affected them.
‘‘But they didn’t put anything in the contract about milk price.’’
In response to questions from the inquiry panel, Ms McInnes said they were contracted for three years because they took up an offer to buy discounted shares.
Ms McInnes said later they were seeking legal advice on their obligations.
Lockington farmer Paul Weller said he was able to easily escape from his contract with Murray Goulburn to switch to Fonterra.
‘‘We could get contracts with other companies, probably at higher prices, but it doesn’t work with my farm and I haven’t wanted to go down that track. It would require a flatter milk curve,’’ Mr Weller said.
He said Fonterra’s price appeared to be better so he had income forecasts from both companies and found that on his farm the price was $4.10 with Murray Goulburn and $4.50 with Fonterra.
‘‘Every farm is different because of different qualities, volumes.
‘‘In the end, we are milk producers and it was better for our family company to supply Fonterra.
‘‘Since then Murray Goulburn have had a re-think on their claw-back and it has closed the gap, but not fully, for us,’’ he said.
‘‘When we get to the first of July next year, the companies come out with their opening prices, I will have another look.
‘‘The days of supplying a company for years and years has changed.
‘‘Businesses will go where the best return is for their farm.
‘‘We had no debt with Murray Goulburn. They are tied in.
‘‘When Murray Goulburn had their unit float they financed other suppliers from other companies to come over.
‘‘I was a little upset with Murray Goulburn, because here we were, a family that had supplied Murray Goulburn for over 50 years and they were financing people to come over and buy shares.
‘‘If we wanted to buy shares, we had to pay full price. They weren’t exactly being loyal to their suppliers.’’