The Australian Competition and Consumer Commission has filed Federal Court proceedings against Australia’s largest milk processor, Murray Goulburn Cooperative, but decided not to take any further action against Fonterra Australia.
An investigation was launched when Murray Goulburn abruptly slashed its forecast payout for its farmer shareholders in April last year, a move that was followed by Fonterra’s Australian unit in early May.
One of the reasons it opted not to take any action against Fonterra was that it was “more transparent about the risks and potential for a reduction in the farmgate milk price from quite early in the season,” said ACCC chairman Rod Sims. Fonterra said the last 12 months had been “incredibly challenging” for Australian dairy farmers, their families, our communities and our industry.
“We understand it will take time to rebuild confidence in the dairy industry,” it said.
“We are currently working on a range of initiatives, including a more transparent milk price, and industry measures to help get our industry back on track,” Fonterra said.
The ACCC alleges Murray Goulburn “engaged in unconscionable conduct and made false or misleading representations” and that former managing director Gary Helou and former chief financial officer Bradley Hingle were “knowingly concerned” in Murray Goulburn’s conduct.
According to the ACCC, from June 2015 to February 2016 Murray Goulburn misled farmers when it set an opening farmgate milk price of A$5.60 per kilogram of milk solids and forecast a final farmgate milk price of A$6.05/kgMS “when that was not in fact the case.”
It also 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 A$5.60/kgMS was the most likely outcome for FY16, something that was also not the case.
In April, Murray Goulburn cut the milk price to A$4.75-to-A$5.00/kgMS and said the prior forecast was no longer achievable, according to a press release on its website.
The ACCC alleges Murray Goulburn knew farmers relied on information about the opening and forecast final price to make business decisions and was aware that many farmers were unable to easily switch milk processors, particularly those contracted to Murray Goulburn.
It allegedly created an expectation that the opening price would be set conservatively and would be a minimum price, and that the final price would be higher than the opening price.
It allegedly knew that farmers expected that it would update the forecast final price regularly to reflect material changes and yet it maintained its forecast despite knowing it was overstated.
“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,” said Sims.
The ACCC is seeking orders against Murray Goulburn that include declarations, compliance programme orders, corrective notices and costs.
However, it 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 Helou and Hingle.
Units in the ASX-listed MG Unit Trust, which gives investors exposure to Murray Goulburn’s earnings, fell 0.5 per cent to A$1.02.
Source: NZ Herald