Murray Goulburn to shutter three facilities

Australia’s largest dairy processor will shut down one facility in Tasmania and two in Victoria as it attempts to shore up its balance sheet and make amends with shareholders.

Murray Goulburn, Australia’s largest dairy processor, has decided to close three manufacturing facilities over the next two years in an effort to strengthen its balance sheet.

The company announced it will close down facilities in Edith Creek in Tasmania by the end of this year, and two Victoria-based plants in Rochester and Kiewa in 2018.

The company also said it will cease to recoup Milk Supply Support Package (MSSP) contributions it was requiring the co-op’s farmers to pay back as part of the last April’s decision to cut farmgate milk prices by as much as 20 percent.

“We recognize that this has been a challenging period for you and appreciate your ongoing support,” chief executive Ari Mervis said in a statement addressed to the co-operative’s suppliers/shareholders.

“MG is taking this step in recognition of the unintended impact on suppliers of the MSSP and your ongoing commitment despite these difficult times.”

The company said it will not collect the remaining A$142 million ($105 million; €96 million) and pay back the A$6 million already collected. The company is also suspending dividends and reviewing the dividend payout ratio.

As justification for the April price cut — from A$5.60 per kilogram of milk solids (MS), to A$4.31 per kilogram — the company had cited unfavorable currency exchange rates and weak demand from China.

But while weaker trading conditions have led the company to revise downward its FY17 farmgate milk price to approximately A$4.60 per kg/MS, it has promised to pay farmers an FMP of A$4.95.

Murray Goulburn is under scrutiny from the Australian Competition and Capital Commission (ACCC), which late last month began proceedings against the company for allegedly engaging in “unconscionable conduct” and making false or misleading representations.

“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,” ACCC chairman Rod Sims said in a statement.

The watchdog however is not taking action against Fonterra, which last April followed MG’s lead also to slash its farmgate milk price.

“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 said.

Earlier this week, Fonterra said its forecast farmgate milk price for the 2017/18 season would range between A$5.30 to A$5.70 per kgMS. In addition, the company has decided to pay farmers an additional A$0.40 per kgMS.