Milk price cuts only an ‘extreme option’ says Bega

Mr Irvin told the inquiry, meeting in Shepparton, Bega had only dropped its farmgate milk price once, and that was during the Global Financial Crisis (GFC).

“We reduced our price to the minimum we could reduce it by and we declared quite a hefty loss, it was a shared pain,” Mr Irvin said.

In April last year, Australia’s largest milk processor, Murray Goulburn slashed its farmgate milk price to $4.75-$5 a kilogram milk solids.

The company released a trading update stating it expected a net profit, after tax, of between $39 million and $42 million.

In February the company predicted a net profit of about $63 million, down from its prospectus forecast of $89 million.

Fonterra followed suit, by also cutting farmgate milk prices, slashing 60cents off its payments.

Mr Irvin told senators he felt he had betrayed suppliers, when Bega had to reduce its farmgate milk price.

“Quite frankly, I had broken their trust.”

Step downs should only be applied in extreme circumstances, and not due to poor risk management, he said.

“The suppliers were indeed weak when they had clawbacks placed on them, they didn’t have any power in that decision, but the processor to retailer is a more level playing field.”

Mr Irvin said hearing from farmers, during the hearing, had reminded him of how angry he was, when the price cuts occurred.

“I didn’t believe they were fair and I felt the pain being put on farmers was wrong, that’s the only way I can place it – I was determined we would not go down that path. Quite frankly, I believe the decision should have been reversed.”

Mr Irvin said one of his greatest concerns was the timing of the announcement, as it was too late for farmers to do anything about it.

Bega was “very responsible” across the entire supply chain.

“We do our farmers no favors by not reflecting the market to them, because you can see the consequences of not reflecting an accurate price,” Mr Irvin said.

In an “increasingly volatile industry”, long term investments and strategies were vital, as was trust.

Bega had about 500 farmers, supplying milk from New South Wales, Gippsland, northern and western Victoria.

“I feel like my farmers trust me and I trust them, and the relationship is a long embedded one,” he said.

“I am highly distressed to see that breeching of trust has extended across the industry and it’s not just related to a few processors

“They are not sure they can have the trust in their leadership they should have.”

He said the pricing system had been about sharing the risks and opportunities.

“The knowledge of that risk and opportunity sits with the leadership of the companies,” he said.

“The risk is borne across the supply chain, it’s a processor that bears it all, the processor sets a price and hopes for the best, for want of a better way of putting it,”

Companies must accurately reflect the market in their prices, or risk over, or under, production.

Mr Irvin said he recognised supermarkets had an obligation to their customers.

“Australia is one of the most competitive dairy markets, in the world.”

“(Processors) put out to tender, we are joining tenders and hoping to win, quite frankly, but hoping to manage the risk of how we win that tender.”

 

Source: BegaDistrictNews

Link: http://www.begadistrictnews.com.au/story/4444724/milk-price-cuts-only-an-extreme-option-says-bega/

 

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